As many readers of this blog know, I feel that the problem is the economists who run the world. Politicians too, but this blog deals with economics. In my original article, “Why You Should Ignore Economists” and in “The Smartest Guys in the Room,” and in many others, I point out the fact that most economists run with the pack and get it wrong. All the time.
Here is yet another example I got from the Wall Street Journal’s RealTime Economics. In their article they quote T.J. Marta, founder and market strategist with Marta on the Markets, who is outraged by the failure of the powers-that-be to see the eurozone crisis coming:
“In light of the recent developments in Greece, the Fed’s Dennis Lockhart was sheepish at a conference yesterday that had the stated theme, ‘after the crisis’. He admitted that the theme was chosen earlier in the year when Europe’s sovereign debt troubles were not fully anticipated. In defense of the folks choosing the title, the conference was about the mortgage crisis, not general financial markets.
“However, Lockhart’s admission as a member of the Fed about not fully anticipating sovereign issues is telling nonetheless. So we’ve got at least one member of the Fed admitting he didn’t appreciate the issue. We’d throw [Jeffrey] Lacker and [Thomas] Hoenig in the same pile. And it’s not just the Fed members. This week, a major U.S. bank [Morgan Stanley] backtracked on its rate call, also using the cover of new developments in Greece. We recently went to a conference at which three U.S. economists from three major banks spoke, figuratively tripping over each other in calling for the first Fed rate hike by [the third quarter]. None mentioned Greece. None mentioned U.S. federal fiscal policy uncertainty, especially with the November elections. None mentioned the woes of U.S. state and local governments, holes in the budgets of which keep opening up. None mentioned the potential effects of Chinese tightening, although when pressed by a question from the audience, one economist did manage to stammer some lip service about the potential impact on the U.S. economy (his rambling told us he had not considered the impact in more than passing.)
“It seems to us that U.S. economists in positions of great power to shape public policy and market expectations are failing to do their job. They seem to be stuck in U.S.- and econometrics-as-the-center-of-the-universe paradigms. We’d caution clients against following the shtick of economists calling for a steady-as-she-goes economic recovery and strongly urge them to deeply probe representatives espousing these views. Perhaps more importantly, we’d caution clients to earnestly consider the fat tail of a double dip, or at least a below consensus recovery in determining one’s investment strategy.”