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Another reason to shoot economists and abolish the Fed
Wednesday, November 14, 2007
This comment just came in on A much simpler way of describing monetary policy from last week. It seemed only fitting to share this with a broader audience since I'm guessing that very few of you go back and check for new comments on week-old posts that have long since scrolled off the main page.Dear Tim,
"Cognizant and Perceiving" (the author) linked to this Wikipedia entry for Economist, so I'm guessing that he/she is a dismal scientist who is perhaps displeased with his/her career choice or is maybe a little upset with the freakishly high rank this blog gets for a simple Google search on Greenspan.
I am aware that people have the ability and the right to espouse whatever "knowledge" they like, whenever they like. I applaud your ability to find and cater to an audience who appreciates biased mis-knowledge. Your knowledge of economics (Econ 101) should have given you enough curiosity to delve further into micro and macro economics. The basis of economics is hypothesizing and testing.
Unfortunately, economics is a social science, meaning that economists cannot have a "control" economy vs a "test" economy. Ever hear of ceteris paribus, the magic Latin phrase meaning "all else being equal"? This is what applies to micro and macro economic decision making by: the Federal Reserve, NBER, BEA, BLS, corporations and Alan Greenspan. You take fundamental economic knowledge and a possible hypothesis (proved accurate via statistical testing) to make a decision in the real world (i.e. - cutting the Federal Funds Rate, etc.). But this assuming NOTHING else changes. Ever try solving an equation with 500 variables that all change when you change just ONE variable? Thats what happens with the Fed. They have literally hundreds of indicators about the economy that are put into forecasting models. What ANYONE can do is nothing more than the best educated guess using fundamental economic knowledge and possible peer reviewed hypotheses.
Your clear lack of economic knowledge and passive-aggressive hate of people you feel "wronged" you and/or the world via "ignorant" economic policies is laughable. Instead of being a "monday morning quaterback", why don't you go to the Federal Reserve and slip into Ben's shoes and see how you do at the helm.
Me slip on Ben Bernanke's shoes?
Now that's not only laughable, but a peculiarly weak end to an otherwise spirited rant.
23 comments:
On a serious note, I do have some animosity for a system and its enablers (e.g., economists) that see fit to systematically steal from its citizens through inflation that appears everywhere but in government statistics.
The 2.3 percent annual increase just awarded to social security recipients when their actual rate of inflation is some multiple of that - well, someone ought to be shot for that.
"why don't you go to the Federal Reserve and slip into Ben's shoes and see how you do at the helm."
Good idea.
Let's have a TV show like American Idol. We can call it American Economist. Give everyone a test portfolio and have them go at it. Whoever wins gets to be the Fed Head for the next year!
Yay! Go America!!!
how about those doofuses Lereah and Greenspan marvelling at financial bubbles just as they were peaking?
that's some fine work by economists there
Let's have a TV show like American Idol. We can call it American Economist. Give everyone a test portfolio and have them go at it. Whoever wins gets to be the Fed Head for the next year!
Uhm...Where do I sign up for this?
If I understand the author's concerns correctly, he/she is criticizing any efforts by non-degreed economists (that is, those individuals that get their degrees in other disciplines or those with no college degrees) to make observations and forecasts regarding the economy. I find that arrogant and elitist. He or she could also make the argument that only mathematicians are qualified enough to choose winning lottery numbers.
Yes, there are many, many variables that collectively affect the economy. I do not think that fact is disputed. My preference is not to 'monday morning quarterback' a person's lottery number guesses; that is a wasted exercise. I prefer to monday morning tabulate the percentage of Americans that have gotten themselves into financial hock.
My preferred measure is median after-tax income divided by a non-hedonics-adjusted basket of goods and services, since accurate numbers are easy to come by.
In a nutshell, if this measure is increasing, that is a sign of an increasing standard of living. As we all know, this number is heading in the wrong direction.
Tim,
Those individuals that are not saving for retirement (and planning on Social Security to make up a non-trivial portion of their retirement income) are placing the ultimate sucker's bet.
In effect, they are placing their full faith and credit in the US government to deliver, at no cost to them, a currency that will preserve its purchasing power. It is a free lunch mentality. The US dollar is a promise to pay nothing.... a promise the US government intends to keep.
The 2.3% increase in the cost-of-living adjustment is not an unexpected result. The government intends to inflate its liabilities away. Those that believe in free lunches deserve what they get.
He(she) did not read Marx's das Kapital.
The greatest intellectual fraud may just occur when instead of questioning a system, you demand that all others accept only that system's repercussions -- rigging the reality by limiting the variables of and within that reality.
This letter-writer commits that fraud and in doing so, obliterates any reasonable proof that his system-not-in-question...should exist in the first place!
Of course, I've just in that moment been excommunicated from the Church of Econ for having the audacity to suggest not the abolition of the Fed, but that we might want to talk about abolishing the Fed.
Humorous. And quite a handy way to make the very point you deny. All things being equal indeed.
What would uncle Ludwig have to say? This person is obviously a proponent of central planning and the historical record is very clear on how that turns out. Why is the social scientist trying to apologize for policies that have failed instead of simply accepting the result at face value?
What a clown. I especially like the part where he/she calls you a "monday morning quaterback" (note the spelling error from the alleged academic) then gives this quote, "Ever try solving an equation with 500 variables that all change when you change just ONE variable?... What ANYONE can do is nothing more than the best educated guess..." When real people's lives are in the balance, it seems like it would be better not to play with fire. According to this missive, "Cognizant and Perceiving" believes the system is too complex to be solved. Doesn't that make the Fed an armchair quarterback (maybe a bench-warmer).
It seems to me that the market could do a better job of regulating interest rates than the Federal Reserve.
Finally, I would take issue with the academics being the ultimate authorities on the economy. Notwithstanding the obvious claim that any participants in a market economy have on decisions, academic theory is responsible for some of the worse catastrophies in financial history and some of the most apocryphal research (which is hard to overcome given the momentum that exists in academia). Take, for example, the vast Ph.D Nobel Prize power of Long Term Capital Management. How about Eugene Fama and the Efficient Market Hypothesis (a terrible person who tried to stifle legitimate research contradicting EMH).
Ever try solving an equation with 500 variables that all change when you change just ONE variable?
Kind of like driving a car when you can only control the gas pedal.
What ANYONE can do is nothing more than the best educated guess using fundamental economic knowledge and possible peer reviewed hypotheses.
That he doesn't see the obvious solution is to abolish the Fed is odd. A better question for this person is, why isn't the Fed's target inflation rate 0%?
YOU can abolish the Fed. Just dump their dollars for something else.
Ah, ceteris paribus, the economist's get-out-of-jail-free card. Reminds me of my school days. Literally translated it means "I am not claiming that my work has any connection to reality, so don't bother checking."
Wait a minute--is this being put forward as a reason to employ economists to do something other than mystify undergraduates?
Will the Fed fall in the way of the Berlin Wall? I'm ready with my little pick axe.
A few more observations, pursuant matt's comment:
1. If the Fed-level machinations are as inherently unfathomable as our boy insists they are, is it then somehow wise to have a Fed (to have, in effect, unbacked currency in an unmangeable environment)?
2. Is there proof the free market is inadequate to set its own rates? Seems to me Fed policy is an experiment without boundaries, one at visible risk of going into positive degenerative feedback and crashing. Is there incontrovertable proof the free market ever acts that way?
3. Most importantly, is there proof that the Fed isn't actually a calculated fraud on citizens and markets? Central banking has a dismal reputation among those who understand historical economics, does it not?
So, our friend seems to be logically fairly upside down a number of ways, all of them predicated, it seems, on accepting the Fed as an inescapable reality.
Those who can, do. Those who cannot cite academic barriers.
I agree with you, Tim... calling the CPI a measure of inflation is ridiculous, when the government has at its fingertips the actual monetary influx data which would determine the actual measure of inflation, but is either too dumb to use it, or is intentionally hiding it (I'm betting on the latter). It's fine to say that social security will be adjusted annually by a bogus "feel good" number which the GAO pulls out of its butt (although some seniors might object), but pretending that it's a measure of inflation is very deceptive, and gets more so every day. Just like it's fine to cause 10% inflation annual through monetary policy as the only way to make up for out of control spending, just don't stand up in front of the country and blatantly lie about having a strong dollar policy. Creating massive inflation to destroy the people's savings is deplorable, but legal; assuring people the ship is fine as the water level in the cabin should be criminal.
Honest banking, the custodial variety, is not very profitable. The primary goal of the very profitable variety of banking is to get someone else to shoulder the risk while one collects interest and fees on the loans - a con. For this, one needs a central bank where management of the economy to maximize employment while maintaining price stability is its premise. Isn't it now obvious that we are in the risk recognition phase now?
Ironically, my training as an economist makes me especially sensitive to inflation, which, as Milty said, is everywhere and always a monetary phenomenon.
In other words, anyone with a self-respecting Economics degree should question the need for the existence of the Fed. If we rely on the market to price bread and rice, why don't we rely on it to price money and interest rates?
The last time I heard of a '500 variable' model it was someone trying to predict global warming and the weather. I think any Fed Chairman has about as good a shot at forecasting true market interest rates.
More importantly... I wonder why more people don't wonder why the Fed even exists, other than as a tool of taxation.
Its almost a miracle that this Ron Paul guy seems to get it and is running for President!
The Fed exists first and foremost as a means for member banks to lend out a whole lot of what isn't theirs and collect interest on it - huge profits on a grand scale. It also serves as a pretty good tool for counterfeiting.
Your erudite admirer must know that scientific hypotheses are not "proved accurate via statistical testing". At best, they are tested for their plausibility, framed as the likelihood of occurring due to random chance. And if over-parameterized statistical models (i.e., equations with 500+ vars) are not an indication of poorly specified theoretical frameworks, ignorance, or procrustean data torturing, I'm not sure what is. But again, your economist friend already knows that.
Thanks for posting that, Tim. Good laugh. The guy talks the talk - but he doesn't know jack shit about basic Science. (typical of Economics - ).
If you change one variable, and 500 other variables change in response: YOU ARE CHANGING THE WRONG VARIABLE. (reflect this in the situation at hand: Interest Rate is the wrong tool for this job - and CPI is the wrong tool (intentionally so, with malice) to measure the effect.)
The main input to the economy is ENERGY. All activity relies on ENERGY. This is the variable that we must change in order to have any impact. Who controls that variable? Not the FED. OPEC controls that variable. OPEC, and whomever wants to blow stuff up in the Middle East.
Until you control the main input to the economy, everything else is masturbation.
It's not exactly a secret that economics purports to understand frightfully complex and interdependent relationships.
Humility and prudence are sensible responses to overwhelming complexity. These are reactions that remind us that we're all fallible beings, and we know a lot less than we think we know. In fact, we probably don't even have the vaguest idea of how much we don't know.
But humility and prudence are just about the last things that come to mind when people think of economists. Most likely what they'll think of are arrogance, condescension, and relentless toadying in the face of political and financial power. A typical example was the swarm of Biz School shitstains who descended on the former USSR in the 90's, and blithely assumed that they'd undo several centuries of history in a few years. Greenspan is another.
Assuming that economists are capable of self-awareness, does any of them notice how pathetic it is that, out of all the sciences or would-be sciences that have sprung up in the last century, only economics felt it necessary to glom on to the Nobel Prize's prestige, and introduce their own version of the award? You don't see mathematicians or computer scientists or geologists trying to legitimize their "science" with such desperation.
-- sglover
Don't forget, economists did not set up the Fed. Bankers did. Maybe economists = sh--stain; bankers = sh--
Anon--Change that to "Chicago School Shitstains"
---signed, a Commie Pinko Nationalist
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