Noam Chomsky on the Federal Reserve

by Dec 18, 2013Liberty & Economy, Video38 comments

Noam Chomsky speaking in Toronto, Canada, on April 7, 2011 (Andrew Rusk/Wikimedia Commons)

I have an enormous amount of respect for Noam Chomsky. His analyses of U.S. foreign policy are brilliant, and he has been a huge influence on my own work. But over the years, there are two topics on which I have found him extremely disappointing. One is his unquestioning acceptance of the government's official account of 9/11, and the other is his take on the Federal Reserve.

I have an enormous amount of respect for Noam Chomsky. His analyses of U.S. foreign policy are brilliant, and he has been a huge influence on my own work. But over the years, there are two topics on which I have found him extremely disappointing. One is his unquestioning acceptance of the government’s official account of 9/11, and the other is his take on the Federal Reserve. On the subject of the Fed, my disappointment has tended to come from his silence on the subject. But he discusses it in the above video, and unfortunately misinforms his audience such that I would prefer his silence. Bob Wenzel appropriately comments:

Occasional, Chomsky makes a good point. Here, he is at his worst. He doesn’t seem to realize it, but his arguments are the core arguments of the banksters. For a scholar who claims to understand government and elitist propaganda, this guy is in the fog, big time, when it comes to economics.

Chomsky argues that the financial crisis was caused by the “virtually criminal behavior of the corporate system” and that the Fed saved the economy from falling into an even deeper recession. This is not technically incorrect. But what Chomsky means by the “corporate system” is the free market, when in fact that financial crisis was caused by the very same “corporate system” of crony capitalism, a.k.a. corporatism, a.k.a. fascism, that he is trying to defend; e.g., the Federal Reserve is a government-legislated, privately owned monopoly over the supply of currency and credit. This monopoly is not the problem, Chomsky asserts. But it was the Fed’s inflationary monetary policy and government policy of encouraging homeownership and bailing out banks that caused the housing bubble and encouraged the excessive risk-taking that precipitated the financial crisis. Hence, Chomsky is unwittingly defending the very “corporate system” that caused the crisis in the first place.

Chomsky asserts that if wasn’t for the Fed printing a load of money, the economy would be in a deep recession right now. On the contrary, it is the Fed’s efforts to prevent this market correction from occurring that has prolonged the agony and made the Great Recession “Great”. Had the necessary market correction been allowed to occur, the malinvestment would have been liquidated and scarce resources freed up for capital to be redirected towards more productive sectors of the economy, and recovery would be well underway. So, yes, the recession would have been deeper had the government not intervened, but it would have been much shorter and allowed a real, sustainable recovery to occur. Contrary to what Chomsky evidently believes, wealth does not come from a printing press.

Furthermore, the Fed’s actions are just setting the economy up for the next, even worse financial crisis, inflating bubbles in stocks, housing, and bonds. Chomsky is praising the Fed for doing more of the same that caused the recession ostensibly in order to save us from it, but the consequences will be even more devastating.

Beyond that, Chomsky’s economic views are similarly Keynesian, e.g., he advocates printing money to devalue the dollar in order to make U.S. exports more competitive. Except that devaluing the dollar also robs Americans of their purchasing power and makes importing goods more expensive, so how is that helping the U.S. economy? Also, export prices would eventually rise, so any benefit from devaluing the dollar would be short term. Also, other countries would just follow suit, as they have been, and devalue their own currencies in the “race to debase”.

Chomsky is an absolute genius, so it is bewildering that he actually believes that printing money out of thin air is a solution to the U.S.’s economic problems.

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38 Comments

  1. oicu812a

    Terrific write-up, Jeremy. You’re slightly kinder to Chomsky than I. A few years ago I was so taken aback to discover his economic views, and how entrenched he was in their statism, that I could no longer bear to read or hear him at all — even on empire, Israel/Palestine, etc., where he was always “good” or “correct.” There’s an unquestioning acceptance of the state as an inevitable arbiter of things social and economic. My previous image of him may be the worst intellectual judgment I’ve ever made. Still, I won’t call him a fraud; dupe is more like it. To paraphrase the saying: Do not ascribe to malice what can be attributed to ignorance. Oh, and thank God for Rothbard et al.

    Reply
    • Jeremy R. Hammond

      Thanks. It’s funny you mention Rothbard because as I was writing this up, I thought to say something about how Chomsky badly needs to read Rothbard! Ended up not adding that, obviously, but perhaps I should have.

      Reply
      • Adam Martin

        He has, and if you give it twenty seconds of thought, you realize he’s right. No regulations on capitalism would be a disaster of horrific proportions. People would commit suicide to get out of that society. I guess that’s the global extermination that Alex Jones keeps talking about, and unwittingly supports.

      • Jeremy R. Hammond

        It’s not evident to me that Chomsky has read Rothbard. And, no, Chomsky is not right, for the reasons I’ve given you.

  2. Anonymous

    Firstly, Chomsky is an anarcho-syndicalist and is under no illusion with the Fed (he is quite familiar with the works of Rothbard too). What makes you believe Chomsky was referring to the “corporate system” in a “free market” sense? He is an extraordinary expert in understanding why there is no free market, so why have you made this assumption? His agreement with the Fed’s decision of economic intervention was within the framework of the state-capitalist system and not one of a widescoped libertarian view (as such a radical position on the matter, which he often takes, had little meaning in this context).

    Secondly, regarding 9/11, Chomsky simply does not want people to obsess with such a narrow issue. Much greater atrocities are conspired ALL OF THE TIME (often by the United States itself). Maybe 9/11 was an inside job, maybe it was not. Chomsky is no stranger to covert operations and understands the ideology of the elite hawks and their corporate constituents like no one else (almost literally), so to undermine his knowledge would simply be naive.

    Reply
    • Jeremy R. Hammond

      What makes you believe Chomsky was referring to the “corporate system” in a “free market” sense?

      He blames corporations while defending the crony capitalist system that actually caused the financial crisis. That is ipso facto blaming the market.

      About 9/11, I don’t know what you mean by “to undermine his knowledge”, and you are otherwise simply parroting Chomsky’s view that it is “a narrow issue” and somehow irrelevant. It is precisely for this that I mentioned my disappointment in his unquestioning acceptance of the government’s account of the events of 9/11.

      Reply
      • Anonymous

        But how exactly has he defended the “crony capitalist system”? Just because he didn’t mention the Fed as some sort of ultimate cause does not mean he supports it.That is quite faulty logic. It just wouldn’t make sense in the context because he was describing the immediate cause of the financial crisis (investment banks) and the criminal behavior (i.e. credit default swaps and sub-prime mortgages). It is classic “socialism for the rich, capitalism for the poor” and the elite decision-makers do not even entertain the thought of letting their banks fail. So Chomsky, spending much of his life reading government documents, knows not to even bother with the lovely libertarian view of what should happen in an ideal world.

        I am simply parroting Chomsky’s view on 9/11 because I was describing what I thought his view was. But if you’re implying I am agreeing with him, then perhaps you’re right. There hasn’t arisen any hard evidence pertaining to governmental involvement in 9/11, so no individuals can be prosecuted. Of course it is within the realm of possibility and Chomsky admits this, but the truth would probably be something like CIA-linked funding, training and providing key information to terrorists to fly the planes into the towers, rather than some sort of demolition coordinated across multiple government agencies. There are countless potential activists obsessing over what I would personally refer to as the pseudo-logic of how the towers fell, instead of sticking to the facts of what we do know about what is going on in the world and within the US (i.e. drone strikes, removal of civil liberties) and striving to make a difference from what we know to absolutely be true. In regards to deaths, 9/11 is just a blip on the graph. It may sound cold to hear, but it is a statistically view. Chomsky saw it happen with JFK, where so many people obsess over one man. We have hard evidence of numerous assassinations conducted by the CIA and we know that 98% of deaths from drone attacks are civilians, so why aren’t we outraged with these facts we know with much more certainty and use our collective power to prosecute those behind them?

      • Jeremy R. Hammond

        But how exactly has he defended the “crony capitalist system”?

        I answer that quite clearly in the above post.

        As for 9/11, there has arisen hard evidence that the government’s version of events is false. Chomsky’s insistence to the contrary is disappointing willful ignorance. And, yes, there are a lot of other important issues to focus on, but you are neglecting the fact that the very ones you mention are carried out in the name of the “war on terrorism” declared directly as a result of the 9/11 attacks. It is foolish to argue we should not also focus on seeking the truth about what happened that day.

      • Preston

        I wouldn’t expect the government to lay out all the facts about how they were hit; but, I’m curious, what is the hard evidence you’re referring to? I’ve found a lot to indicate the so-called “truth” movement’s version(s) are false.
        http://www.debunking911.com/index.html

      • Jeremy R. Hammond

        The NIST report on WTC 7, for example.

        The Mysterious Collapse of World Trade Center 7: Case Far From Closed
        https://www.jeremyrhammond.com/2011/02/15/the-mysterious-collapse-of-world-trade-center-7-case-far-from-closed/

        Video Analysis of NIST’s Claim of a 5.4 s Collapse Time Over 18 Stories for WTC 7
        https://www.jeremyrhammond.com/2011/07/11/video-analysis-of-nists-claim-of-a-5-4-s-collapse-time-over-18-stories-for-wtc-7/

        9/11 and Skeptic Magazine’s ‘Science’ of Controlled Demolitions
        https://www.jeremyrhammond.com/2011/09/16/911-and-skeptic-magazines-science-of-controlled-demolitions/

      • Preston

        Thanks for your response.
        I’m familiar with the work of Richard Gage and his group.
        In addition to the link I posted above, here is another site that takes a critical look their theories.
        http://ae911truth.info/wordpress/
        They write:
        “What is more interesting than these bizarre and debunked conspiracy theories
        is the way that Gage places his AIA membership front and center in his
        presentations. He seems to be attempting to cloak his organization in
        the officialdom of the venerable 155-year-old professional institution,
        even as AIA wants nothing to do with his organization.”

      • Preston

        There are many experts, people like Brent Blanchard, who I think are much more credible on the topic, http://jod911.com/WTC%20COLLAPSE%20STUDY%20BBlanchard%208-8-06.pdf

        “With all due respect to distinguished scholars and others alike, it matters little whether Alex Jones is drawing parallels to building implosions, Steven Jones is drawing conclusions from hot metal or Chuck Jones is drawing dynamite in the hands of Wile E. Coyote; for assertions to be credible they must eventually comply with the scientific principles of explosive initiation and of structural failure, realistic judgments of probability, and indisputable visual evidence.
        Thus far, every assertion we have investigated scores a resounding 0 for 3.
        Our team welcomes the opportunity to review additional data as it
        becomes available. However barring any additional evidence, those making allegations similar to the points above may do well to consider that sometimes “asking tough questions” isn’t the biggest
        challenge; It’s accepting the answers and decisively moving on to other areas that render their contributions productive and valuable”

      • Preston

        I’ve become increasingly convinced that the “truth” movement itself is the “inside job,” a construct of paleo-libertarians with an agenda to divert and divide progressive popular movements, and attempt to discredit an array of leftish scholars and organizations. Predictably, Noam Chomsky is their favorite target, but there are many others.
        http://www.commondreams.org/views/2008/04/07/truth-about-911-truth-movement
        “The particularly warped thing about this, though, is that the very media
        outlets, authors and activists who are doing their best to expose the
        very real conspiracies that are going on – people like Amy Goodman and Democracy Now!, David Barsamian’s Alternative Radio, Z Magazine, Norman Solomon and the Institute for Public Accuracy, Noam Chomsky, etc. – seem to have become the primary targets of harassment by the Truthers.” – David Rovics

      • Jeremy R. Hammond

        I share your suspicion that elements of the “truth” movement are, as you say, an “inside job”, planting deliberate misinformation. I also share your annoyance at their attacks on the character of Noam Chomsky and Amy Goodman.

        But all that’s irrelevant to either the post or what I’ve said about 9/11 in the comments.

      • Preston

        Glad we could find some common ground. Chomsky makes some further comments on the Truth Movement in a book of interviews with David Barsamian, “What We Say Goes.”
        He notes how this “truth” movement serves powerful interests, and says he wouldn’t be surprised if we learn through documents released in the future that the Truth Movement is being cultivated by the government. He even cites a Pentagon report that talks about how releasing Kennedy assassination material serves as a useful diversion.

        A couple other thoughts on the topic . . .
        http://datacide.c8.com/denial-networks/
        “Almost all conspiracist claims have been analyzed and debunked point by point; not by the American government (the nefarious backer of the so-called ‘official story’), but by thousands of skeptics worldwide from a variety of backgrounds including structural engineers and demolition professionals (see the side column for resources which debunk these theories). This collective debunking effort has on the hand had a large impact in terms of gathering information that details the events of September 11th and exposes the truly flimsy logic and empirical evidence held up by the self-described ‘truthers’; and
        yet the emergence of comprehensive debunking has had little to no
        impact on the Baptist-style evangelism of the core 9/11 truth movement,
        whose proponents not only continue to propagandize the most obviously
        disproven ‘contradictions’ from the initial period of 9/11 conspiracy
        theory (such as the American air defense program NORAD standing down to
        allow the attacks to happen, the “existence of missile silos at the
        Pentagon” which should have shot down the plane in Washington, some
        hijackers still being alive in the Middle East, and much more), they
        also maintain a multitude of more or less obscurantist facts to dredge up and quibble over when any of their central claims are exposed as logically implausible, or outright lies.”

        And this on “The Conspiracy Industry and the Lure of Fascism.”
        http://grafbeyondgraf.blogspot.com/2010/12/conspiracy-industry-and-lure-of-fascism.html
        “The conspiracy theory of history has right-wing roots, and remains
        inherently a phenomenon of the right. Its origins are in the writings of
        the reactionary 18th-century Jesuit Abbé Barruel, who blamed the French
        Revolution on the medieval Order of Templars. His emulators blamed
        Freemasons and the Illuminati for the assault on Europe’s old order.
        This became the template nearly a century later for the Protocols of the
        Elders of Zion. This document first emerged along with the pogroms, in
        which Jewish villages were attacked and burned as Jews were scapegoated
        for the rising of revolutionary currents in the Russia of the czars. It
        was later adopted by Hitler, and justified his Final Solution.
        Conspiranoid thinking was seen in America in the anti-communist hysteria
        of the Cold War, heyday of the John Birch Society; and then in the “New
        World Order” scare of the ’90s, heyday of the militia movement. Since
        9-11, the conspiracy milieu has been in a state of hypertrophy, becoming
        a virtual industry.
        Conspiracy theory is what fascism gives the ‘Little Man’ instead of a fundamental change in the system and an
        overturning of oppressive power relations. Especially with the Tea Party
        and allied movements perfectly poised to exploit the ongoing economic
        agony in America and bring about a genuinely fascistic situation in this
        country, it is imperative that we don’t fall for it.”

      • Jeremy R. Hammond

        I am aware of Chomsky’s views on the subject. It is irrelevant to what I said about WTC 7.

        For the umpteenth time, if you think there is any error in fact or logic in anything I’ve said about 9/11, you are welcome to point out what it is.

      • Jeremy R. Hammond

        If you think there is any error in fact or logic in what I’ve written on the subject, you are welcome to point it out. You seem uninterested.

      • Preston

        Well, I’ve shared some resources that analyze the arguments that Gage and his organization put forward. There appear to be many errors, if not intentional deceptions, coming from “truthers” like Gage, Steven Jones, Alex Jones, et al. That may interest some people.
        A lot of the movement’s assertions were circulated via the film “Loose Change.”
        It was revealing to see the directors of the film get exposed on Democracy Now!
        by a couple of writers from Popular Mechanics.
        https://www.youtube.com/watch?v=stVmEmJ666M

      • Preston

        Also, regarding Popular Mechanics, they quickly were dismissed as part of the conspiracy by the truthers. Beyond the analysis of the destruction of the towers, Popular Mechanics published this article on other traits of the truth movement that they found concerning.
        http://www.popularmechanics.com/military/a921/4199607/
        “In researching the article we’d spent enough time studying the
        conspiracy movement to get a feel for its style: the tone of outraged
        patriotism, the apocalyptic rhetoric, the casual use of invective. A
        common refrain in conspiracy circles is the claim that ‘We’re just
        asking questions.’ One would think that at least some quarters of the
        conspiracy movement might welcome a mainstream publication’s serious,
        nonideological attempt to answer those questions. One would be wrong.
        It was only a matter of time before the Nazis got dragged in.
        Christopher Bollyn, a prominent conspiracy theorist affiliated with the
        far-right American Free Press, weighed in a few weeks later with a piece titled ‘The Hidden Hand of the CIA, 911 And Popular Mechanics.’
        The article begins with a brief history of Hitler’s consolidation of
        power following the Reichstag fire in 1933. ‘Like Nazi Germany of 1933,’
        Bollyn wrote, ‘American newsstands today carry a mainstream magazine
        dedicated to pushing the government’s truth of 9/11 while viciously
        smearing independent researchers as extremists who peddle fantasies and
        make poisonous claims.’
        In a few short weeks, Popular Mechanics had gone from being a 100-year-old journal about science, engineering, car maintenance, and home improvement to being a pivotal player in a
        global conspiracy on a par with Nazi Germany.”

      • Jeremy R. Hammond

        I’m familiar with the Popular Mechanics piece.

        It is irrelevant to anything I’ve said. Again, if you think I’ve erred on any point of fact or logic, you are welcome to point out what it is.

      • Jeremy R. Hammond

        If you wish to make the case that my work on the subject is not credible, you are welcome to present an argument.

      • Jeremy R. Hammond

        Again, how is anything Richard Gage says or anything others have to say about anything Gage says relevant to anything I’ve said? (I deleted your similarly irrelevant comment below. As per the terms of use of this site, please keep your comments relevant).

      • philip.dennany

        There are very real videos of explosions and molten metal still in evidence today. Why was there a Court Order to reinforced official policy to bar 9-11 ground Zero emergency workers from testimony at 9-11 cover-up commission hearings? There are literally hundreds, if not thousands of very real happenings and things that were worthy of investigations but not allowed to even a brief hearing. The 9-11 commission report in fact was prewritten by Philip Zelikow even before the commission was seated.

  3. Anonymous

    I would also like to refer you to this video where he does criticize the Fed as the essentially ultimate cause of the housing bubble: http://www.youtube.com/watch?v=6mhj-j0z-fk at about 10:30 minutes in.

    Reply
    • Jeremy R. Hammond

      No, he doesn’t. He criticizes the Fed at that mark in the video for failing to recognize that there was a housing bubble, which he attributes here once again to market forces.

      Reply
      • Adam Martin

        Which it was. The Federal Reserve did not force investment and commercial banks to leverage at 40:1, create toxic a derivatives market, and accept $600 bilion in naked credit default swaps with no capital requirement.

        The banking system learned how to create their own form of cheap credit.

      • Jeremy R. Hammond

        No, Adam, the housing bubble wasn’t caused by the free market. The housing bubble was a consequence of government intervention in the market, primarily the Fed’s inflationary policy of artificially low interest rates, along with the government policy of encouraging homeownership.

      • 19battlehill

        The housing bubble was caused by the easing of credit lending, which was done by the banking sector. Same thing happened when banks eased credit to the masses to lend into the 1929 stock market crash, only then the Fed did not come to the rescue it screwed everybody- this last time they FED saved the banks and screwed the borrowers.

  4. Adam Martin

    He actually talks about eliminating capitalism, but you guys have banker cock too deep in your throats to realize that. CUT MINIMUM WAGE! HARSH AUSTERITY! FUCK POOR PEOPLE! KEEP INFLATION LOW, SO BANKERS GET MAX RETURN ON $16 TRILLION OF HOUSEHOLD DEBT!

    You guys sound like a banker loyalists. Eliminate the state, and allow the bankers to run it. That’s exactly what your policies would lead to.

    Reply
    • Jeremy R. Hammond

      How incredibly bizarre for the one calling for an end to the government-legislated monopoly over the supply of currency and credit to be accused of being a “banker loyalist” and desiring to have the bankers run the state by the one defending this system’s existence.

      Reply
      • Joookdkdda

        ayyy nice run on sentence dood never been here before is this your website ??

      • Jeremy R. Hammond

        It’s not a run-on sentence, and, yes, as the name suggests, this is my website.

  5. mikel archibald

    This is old I know, but I was just looking for Chomsky’s view on the federal reserve and this came up. For others who may follow, I have to point out something that Chomsky would EASILY have noticed:

    “Chomsky asserts that if wasn’t for the Fed printing a load of money, the
    economy would be in a deep recession right now. On the contrary, it is
    the Fed’s efforts to prevent this market correction from
    occurring that has prolonged the agony and made the Great Recession
    “Great”. Had the necessary market correction been allowed to occur, the
    malinvestment would have been liquidated and scarce resources freed up
    for capital to be redirected towards more productive sectors of the
    economy, and recovery would be well underway.”

    That is not a ‘reason’ (maintained below), nor is it evidence. It is conjecture. Virtually every country in the world responded in a similar way, we have no actual EVIDENCE that what you say is true, in fact there is NO way to even test whether something which didn’t happen would have the outcome you prescribe.

    LIkewise though, Chomsky hasn’t got evidence that we’d ‘still be in a recession’. He himself has admitted his limited knowledge of economics, and has even emphasized his lack of respect for the profession. So I would chalk it up with any comments he may make on particle physics, its not his expertise, so its likely he’s parroting an opinion. The guy isn’t the messiah (he’s just a very naughty boy according to Nixon:)

    That he is a ‘statist’ is something he has said himself because he thinks incremental change is the most likely way to develop decent public policy. But I think the notion that the federal reserve is something other than an arm of hte government is inaccurate and would need to be proven.

    In short, your view is no more proveable than Chosmsky’s. So you essentially saying you don’t like Chomsky’s view because it disagrees with yours.

    Reply

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