'Free Market' Austrian Market 'Forecasters' Are An Oxymoron
It is enormously frustrating to me each time I hear a self-proclaimed free-marketer opining on day-to-day market fluctuations and forecasting where he believes markets are headed. It makes me wonder how these market prognosticators came to label themselves free-market in the first place. Surely it cannot have been by reading Frederick Hayek's The Pretense of Knowledge, which says that the economy is far too complex, and our knowledge too limited, for any one individual or group of individuals to play the role of The Oracle.
Free-marketers whose focus is on the evil of state intervention in the economy are often particularly astute with their analysis of just how harmful central planning can be and why it is a fool's errand. The Austrian School of Economics is one particular brand that I rely heavily on in my own thinking. Austrian economists like Ludwig von Mises, Henry Hazlitt, Hans Senholz and Murray Rothbard have written some of the most devastating critiques of state economic policy. Yet many modern day Austrians have chosen to build on the work of these giants by turning their acquired knowledge into an investment consulting business. By doing so, they reveal the kind of conceit that we'd expect from the Federal Reserve Chairmen on whom they normally and correctly heap scorn. Apparently, they take Hayek's knowledge problem as one that limits only government bureaucrats.
These energetic free-market thinkers who deride the all-knowing, all-seeing eye of central planners, and in the next breath proclaim a major market meltdown or an interest rate spike before year-end, are merely private versions of the meddlers they criticize. They may not take anyone's money by force, but their business is nonetheless frequently defined by market calls that their Austrian viewpoint would dismiss if coming from others. It is all the more shameful that many of these free-market Nostradamuses are armed with (or should be, given their pedigree) the intellectual capacity to know better.
Peter Schiff is a notable example. While Schiff's general economic analysis is sound (and in the Austrian tradition), he has acquired a following as a personal investment advisor prone to making market predictions that are often going to be wrong not because Schiff lacks depth, but because Austrians well know that it's a fatal conceit to presume a hotline to the future. He has made quite a name for himself predicting doom and gloom around many a corner, and on a very high-profile occasion (2008), he, and there's debate here too, allegedly got it right. Nevermind the numerous other predictions that have failed to materialize.
It's important to note that a proper free-market analysis of Schiff-the-Investment-Advisor wouldn't knock him for frequently being wrong with his investment predictions. Indeed, to point out where Schiff has made incorrect market calls isn't to fault Schiff; in truth it's to fault the presumption that one wise man, or a collection of wise men, can reliably predict the future. As even the best hedge fund managers will acknowledge, they're wrong nearly as often as they're right, and sometimes they're wrong a majority of the time. Instead, a proper free-market analysis would fault Schiff for making such bold predictions in the first place.
Why have so many otherwise smart free-market proponents, who normally understand the folly of the Wise Overlord, chosen to follow along? Perhaps it is not based entirely on faith in Schiff's abilities as a fortune-teller, but rather on something psychological within the investors themselves. Maybe there is something sexy about doom and gloom that people simply like to buy into. That would explain why news coverage generally tends to be morose. It's just what sells. I always laugh every time a nightly news cast ends with "...and now for a happy story!"
Schiff plays into this mindset brilliantly. He's able to do so, in part, by pairing truth about what he logically decries about state intervention with a presumption of future-knowledge that all Austrians logically decry. After trenchant criticism of the destructiveness of state economic policy (which makes logical sense), Schiff then takes his impressed audience down a path he proclaims will allow them to profit from his predictions about the exact nature and timing of the coming collapse. In doing so, he unfortunately becomes exactly what he criticizes.
To be fair, Schiff is the norm in his business. Every financial salesman and CNBC talking head bills himself as having the perfect knowledge required to make you filthy rich, if you just follow along. It is just a shame that so many of them claim to come from a free-market heritage that says this is impossible.
