Peter Schiff: Doesn’t understand his own position

It’s one of the deep ironies in economics that so many economists (to be fair, sometimes without realising) argue that the market works in mysterious ways beyond what any of us can comprehend and that trying to get ahead of it is impossible… then spend their entire careers trying to explain how to, or how not to, get ahead of the market. According to Peter Schiff’s blog he has an Austrian Economics view of the markets. Talking about gold he said:

People were buying internet stocks at crazy valuations just before the crash, people were buying condos in Vegas. They are doing the same thing in reverse when it comes to gold. It is the same lack of understanding of the fundamentals that is causing a mispricing of the asset.

So it seems that an understanding, or lack there-of, can cause the ‘mispricing’ of an asset. How is that possible? Is the market powerless to resist the effects of people’s ignorance?¬†Or is he arguing that everyone has to be a devout and practicing Austrian Economist for Austrian economics to hold [1]?

Austrian economics argues that all agents obey what they call the Action Axiom, which seems roughly similar to the general mainstream proposition of rationality. It argues that economic agents do things that maximise utility, though they seem to dress things up with even more messy language than main-stream economists [3]. Austrian Economics also argues, again like mainstream economics (they aren’t as hip and anti-establishment as they’d like to imply) that the economy is just a sum of agents and by treating each agent as the same agent they can pretend that what is true for one agent is true for the economy [2]. So again, how the hell can any agent’s ignorance cause ‘mispricing’? In fact how can any agent be even said to be ignorant of anything relevant to prices? Every component of this statement contradicts some axiom of both Austrian Economics and mainstream economics in general.

[1] That would cause an interesting paradox in that, apparently, being an Austrian economist means not understanding Austrian economics.

[2] They hold it as axiomatic that there is no such thing as a group entity in economics.

[3] The difference is that the action axiom is, as far as I can tell, an unfalsifiable basis of a huge circular argument, while the idea of rationality is falsifiable and clearly nonsense.

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