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.