Meyerson in Washington Post Op-Ed: Free Market Types Got it Wrong

Harold Meyerson in today's Washington Post said this:

The problem with contemporary economics, at least with the purer strain of free-market economics ... is not simply that it failed to predict the near-collapse of the world financial system last year. The problem is that it believed such a collapse could not happen.

So free market economics failed to predict, and failed to even consider the possibility of near collapse of the financial system? Actually, it's the exact opposite. There is a school of free market economics called Austrian economics, which is perhaps the "purest" strain of free market economics, that describes exactly the type of boom/bust phenomenon that our economy experienced. He could have done a simple google search for "who predicted financial crisis", and he could have found all kinds of articles and video links from "free market types" like Peter Schiff and Ron Paul. He may even want to go back and look at the rationale for awarding Friedrich von Hayek, another "free market type" the Nobel Prize in 1974. From NobelPrize.org:

"von Hayek showed how monetary expansion, accompanied by lending which exceeded the rate of voluntary saving, could lead to a misallocation of resources, particularly affecting the structure of capital. This type of business cycle theory with links to monetary expansion has fundamental features in common with the postwar monetary discussion."

I don't care so much that Meyerson agrees or disagrees with this theory, or free market economics in general. And it's true that many free market oriented economists failed to predict the financial crisis, and it's also true that the Austrian explanation of the business cycle has its critics, even among some free market economists . But nevertheless, he is clearly wrong when he says that free market economics failed to predict or even consider the financial crisis.

Meyerson even blames the practice of "mortgage securitization" on the free market. Of course, securitization of mortgage debt was something explicitly created by the government in 1970 and the government is still by far the most influential player in that market.

Maybe Meyerson needs a research assistant, or access to the Internet.

[Update]

Veronica de Rugy also has a great post on the Meyerson op-ed over at NRO. She asks "How can someone write a column on an issue he knows so little about?" One of Meyerson's arguments is that free market economists believe "that all risk could be quantified by mathematical models and that these quantifications could help us correctly price just about everything." Once again, it's the exact opposite. She points out that free market economists, specifically from the Austrian school, reject the use of mathematics in trying to model something as complex as the economy. She closes by saying:

Mr. Meyerson should read the Austrian Economists blog. Great economists such as Pete Boettke, Frederic Sautet, and Steven Horwitz make the case for freedom daily, with no math. He should also read their books and articles; all published in respected academics journals, without much math at all. And by the way, all of these economists have claimed for years that we were heading for disaster.