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Noah Smith

Austrian Economics Might Explain China's Turmoil

Unlike other theories, it accepts market instability and bubbles.
Investing in ghost cities.

Investing in ghost cities.

Source: ChinaFotoPress/Getty Images

There are still economists who publish papers in the Review of Austrian Economics, and there are still a bunch of people on the Internet who will tell you they subscribe to the "Austrian school." The Austrian school, for the uninitiated, is a hodgepodge of beliefs, usually holding that fiat currencies are doomed to fail, that a return to the gold standard is inevitable and that central banks are responsible for bubbles, market crashes and recessions. But this group has grown relatively quiet of late, and it isn't hard to see why.  

First, there was the dramatic failure of the Federal Reserve's program of quantitative easing to cause even a hint, even the slightest whiff, of inflation. For a few years, the fears of inflation were kept on life support by Austrian claims that inflation was being hidden from the public eye, that asset price increases were actually a form of inflation, or -- my personal favorite -- that QE itself is inflation. Eventually, even the most diehard supporters of these silly backup arguments were forced to quiet down; reality can only be denied for so long.