Film-maker predicts hyperinflation; an economist disagrees. Which to believe?

On a forum I visit daily, a member had posted a link to an article describing a hyperinflation scenario in the U.S. I visited it. Later in the day, the website owner, economist and historian (and music buff) Gary North responded (members only):

I am writing this in response to a site member’s question. The member asked my opinion of this article.

Usually, I do not take the bait. If someone does not know enough to ask specific questions, it’s an “I’m wetting my pants” question. “It sounds so bad. Is the sky falling?” I then refer him to this article:

http://www.garynorth.com/members/5867.cfm

[I would also refer him to this article: Self-Inflicted Confusion and Paralysis: Thinking About the Economy Without Understanding Economics]  I am making an exception with this article, because it is so utterly, incomparably wrong-headed. It is so awful that it stands out like a beacon of incompetence. There is a grandeur to it. It is written with such confidence, yet it so completely illogical that it is breathtaking. This is World Cup finals nonsense…

It’s long. It’s also dead wrong. It’s long because it starts off wrong and tries to recover. It never does.Read more…

Gary North then took the article apart, point by point. It is a glorious sight. Dr. North is providing a genuine service in cases like this, because articles like the one he analyzes abound on the Internet and because in his refutations, North educates.

I’m not saying Dr. North is infallible, or that I believe whatever he writes. The service he provides, and which I gladly pay for, is this: reading his articles and comments on the various forums of his site (he is a prolific writer) I learn about economics, finance, investing, money, business, marketing. I learn because Dr. North is experienced and knowledgeable in all these fields. I learn because Dr. North reveals in his articles, either explicitly or implicitly, principles which underlie these disciplines.

For example, in his refutation of the article in question, he defines deflation: not a drop in prices,

Deflation is a decrease in the operational money supply, which includes the multiplier. The monetary base jumped in 2008, but banks are not lending, so we have seen an offset: an increase in excess reserves. Yes, central banks have inflated, but have slowed down recently.

He defines depression (the economic kind): “A depression is where GDP is falling by 5% per annum or more.”

In order to defend oneself against misinformation, one needs the tools to be able to analyze information. Specifically, tools of logic. Knowledge of economic (or other) principles helps, of course, but such knowledge is also based on logic and rational thinking.

Recently, Jon Rappoport came out with a course in logic targeted at homeschoolers. Here’s an excerpt from the blurb:

Most people accept whatever information is placed in front of them, because they can’t analyze it. They become passive because they don’t know how to apply logic.

His course is his remedy for that problem.

One section deals with examples of logical fallacies or flaws, and introduces as one example of this the ad hominem attack.

I was able to use this tool recently. I picked up a book about the market. Flipping through the pages, I happened on a page about Hayek. After a brief introduction (unknown economist until he unexpectedly received the Nobel Prize in 1974, most famous book was “The Road to Serfdom“), the author then dismissed Hayek by… talking about his writing style! Nothing about Hayek’s ideas or his economic principles. This in itself was enough to raise a red flag. (A second flag was raised when the author went on to say that although Hayek and von Mises were part of a school of economics called the Austrian school, in effect, Hayek was without heirs, and the tradition was not continued. Von Mises, though, did have heirs who continued his tradition, and this fact should certainly be known by someone who knows the name of von Mises.)

To return to Dr. North’s refutation of the hyperinflation article, he concludes (note: not begins)  his article with the information that the author is a film-maker in Chile. By itself, this could be the start of an ad hominem attack – “what could a film-maker know about economics?” – but coming at the end of the article, it merely pounds a final nail into the coffin. Dr. North thus teaches a further principle – this time in reading and analyzing Internet articles: if the author does not provide information about him- or herself, do your own homework. Such biographical information, while not decisive (Aaron Russo was also a film-maker, after all, and just because someone is said to be an economist does not mean their assessment is necessarily correct), should nevertheless play a role in one’s assessment, particularly when authority is claimed.

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