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.”
Economists today play the role of priests in the Middle Ages: both are called upon to justify the State. What “divine grace” was for the absolute monarchs of yesteryear, “market failure” is for the democracies of today. Both use sacred texts and incomprehensible mumbo-jumbo to obscure the obvious.
The comment by “Dietwald” is wide off the mark.
There were no absolute monarchs in the European Middle Ages. If the word ‘State’ has any specific meaning, there weren’t states until Early Modern Times, when kings began to consolidate their private (dynastic) power and influence as corporate power — when they switched from speaking about the lands under their control as “realm of the king” to speaking about themselves as “king of the realm”. They made it appear as if the realm were a separate, self-subsistent corporate person and they themselves were merely its living personifications. This led eventually to the (in)famous “L’état, c’est moi” (attributed to Louis XIV).
The idea of absolute monarchy became possible only when “the realm” came to stand for an indivisible whole, with everything (and everybody) in it merely an aspect, not separate or even separable part, of it.
In the Middle Ages, i.e., before that absolutist notion took root, kings had many prerogatives and privileges, but they would not have claimed to be “above the law” (the law of the land, the natural law). Absolute monarchs, in contrast, deemed themselves to be only “under the law of God” (i.e., to have to answer only to God).
As for economics, medieval and early modern priests were on the whole sound economists, especially on monetary matters and the role of subjective factors in trade and the formation of market prices. Read Nicholas Oresme’s “De Moneta” (On Money), or peruse the writings of the 16th- and 17th-century theologians at the university of Salamanca. They had few (if any) kind words for the rulers who were then claiming “absolute sovereignty” for themselves. (Yes, Medieval and absolute kings had their sycophants even among the clergy; but, believe it or not, most Medieval and Early Modern priests and theologians were loyal to the Church rather than the ruler of the day.)
One does not bolster one’s critique of modern Anglo-American economics with ignorant blather about the distant past.
Dun,
I’m quite familiar with the Scholastics of Salamanca, thank you very much. Did I accidentally gore a sacred cow of yours? While there were indeed a small group of sharp-witted and learned scholastics working away in Salamanca, their numbers were dwarfed by the armies of dullards and dimwits that scared the peasants with their moronic hocus-pocus.
Let me then rephrase my earlier statements:
Economists today play the role of priests in bygone days: both are called upon to justify the State. What “divine grace” was for the absolute rulers of yesteryear, “market failure” is for the democracies of today. Both use sacred texts and incomprehensible mumbo-jumbo to obscure the obvious.
And before you go on with some misguided frothing regarding to term ‘state’, I recommend you to read some Oppenheimer first. You may not agree with him, but at least it will open you up to the possibility that the term State can be defined more broadly than what you propose.
Regarding your silly contention that in the Middle Ages there were no absolute rulers – may I suggest you look at the Middle Ages to be bounded by time rather than time and space, and include in your understanding the many parts of the world not covered by Europe? You might then discover that there were indeed absolute and divine rulers alive in the Middle Ages, just maybe not in Europe.
And furthermore, it may be a good idea to be polite in your conversations with others – particularly when you hide behind an pseudonym while I use what is in fact my real name.
Broaden your horizon and learn some manners.
Sincerely,
d
I learned economics at the beginning of the “metrics” phase, where everyone had to be a math wizard and everything had to be boiled down to an equation. I read somewhere that economics took this turn because all too many math oriented students couldn’t get jobs in the 70′s. Don’t know if that is true but it sounds right.
Anyway, there certainly is a place for math in economics but markets aren’t linear, they’re subject to all kinds of human influences that can’t be reliably predicted from a logical perspective that mathematics requires. As math skill ascended, reasoning skills declined. Reasoning being the skills it takes to look for BEHAVIORS that are getting stupid (the stock bubble, real estate bubble, etc). Math people will scour the earth for formulas and data that align with their bias (or their boss) which so often renders both their conclusions and reasoning suspect.
Economists can serve society (and their employers) by bringing the broadest perspective to bear on economic matters. Unfortunately, the econometrics movement does precisely the opposite, it attempts to sharpshoot items with formulas and ends up ignoring all kinds of other, often non-mathematical, non-measurable data that more critically influence an economic direction than any numbers could ever express.
Witness the witless “housing prices never declines” mantra and similar ignorant statements that seem to always broadly appear as “conventional wisdom”. Give me an economist who looks at behavior AND numbers AND history. They may not be perfect but I’ll bet they come closer to providing useful analysis than any mathematically oriented economic “wizard”.
Jag,
there is a school of thought that denies the utility of numbers and history in the study of economics altogether (not to be confused with accounting, where numbers at least are vital). History, as Popper showed quite nicely, teaches us very little beyond the obvious. And von Mises showed very nicely that numbers in economics serve no useful function whatsoever. In the final analysis, economics is about individual preferences that cannot be meaningfully quantified and even less meaningfully aggregated.