Noah Smith notes, correctly, that the current position of the hard-money coalition — now that it seems, after many years of failure, to have mostly given up on predicting runaway inflation — involves a remarkable repudiation of an idea that one might have expected them to hold dear, namely that of efficient financial markets. But I think he fails to convey the full incoherence of the current hard-money position.

Let’s go back to my favorite line from Maestrodamus:

Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.

The first part of that quote actually conveys pretty well the common creed of all the anti-interventionists out there: the invisible hand is out there, and it knows what it’s doing. Even if you think it looks as if markets are way off, you are a mere mortal who cannot understand the market’s wisdom, which is “unredeemably opaque”. It’s not so much that the market is always right — although “with notably rare exceptions” it is — as that economists and government officials cannot possibly second-guess the market in any useful way.

And yet, you must also believe that this wise market, guided by the invisible hand, can be sent wildly off course if the central bank prints too many pieces of green paper; and not just that, you have to believe that it can be sent wildly off course in a predictable direction.

This contradiction has always been a core peculiarity of the Austrians; but now it is shared by a wide spectrum of right-leaning economists.

Some economists, like Antonio Fatas, demand to see the model that produces such results. But I really think you need to understand this in terms of backward induction. First comes the answer: government action of any kind to fight a slump is bad. Then the search is on for a story to justify that answer, and it really doesn’t matter if the story is inconsistent with everything else you’ve said. (Surely the financial stability argument should lead one to demand very strong bank regulation, and also a highly activist monetary policy to correct those flighty, unreliable markets with their predictable errors).

All in all, we are continuing to learn a lot from this slump, not just about how the economy works, but about how many economists work. Unfortunately, none of the news is good.