Arnold Kling, a macroeconomist with an MIT Ph.D., made some money on his own startup during the Internet years, which allows him to blog at his AskBlog with a politely jaundiced eye on his fellow MIT economics grads who are still running the world:
A few years ago, I happened to run into Olivier Blanchard.
Blanchard is an MIT professor and longtime chairman of its economics department on leave to be chief economist at the IMF.
I offered my complaint that folks like Stan Fischer and himself had made macroeconomics narrow and stilted. “We’ve passed the market test,” he replied.
But the “market test” to which he referred is limited to academic macro. It is a supplier-controlled cartel, not a consumer market.
In general, we still seem to be ruled by the guys who were on top of the world in the 1990s and early 2000s. It's often pointed out that virtually nobody on Wall Street went to jail after 2008, but it's also striking that plenty of economists who were in charge of setting up the system that proved so hollow in 2008 are still on top of the world. For example, Stanley Fischer's return to the U.S. is being greeted with hosannas as a nearly infallible genius because he happened to sit out 2008 as head central banker in Israel, with little mention of his role in setting up the global 2008 as the intellectual godfather of the dominant macroeconomists.
A lot of this is just an old fear that any jungle tribesman would understand: Yes, maybe we occasionally have doubts that our most prestigious witch doctors know completely what they are doing, but surely they know far more than you or I, so we'd better keep paying them to keep the evil eye away.
Its even worse when the witch doctor admits he has no clue what he is doing:
ReplyDeletehttp://www.zerohedge.com/news/2013-12-11/former-bank-israel-head-rumored-be-deputy-chairman-fed
Mr. Fischer said making such statements – known as forward guidance – can cause market confusion. “You can’t expect the Fed to spell out what it’s going to do,” Mr. Fischer said. “Why? Because it doesn’t know.”
It's often pointed out that virtually nobody on Wall Street went to jail after 2008
ReplyDeleteNever mind going to jail, it's striking that so few of these people were even fired or demoted.
Wall Street seems to operate much like the government, where nobody is ever held accountable for screw-ups. The worst that happens if you do a bad job is that you get shuffled sideways into a job in a different department which still pays the same - if not better.
49000 google hits for "brilliant physicist." 44900 hits for "brilliant economist." O-ring is right, Tabarrok gets that much right.
ReplyDelete"Never mind going to jail, it's striking that so few of these people were even fired or demoted."
ReplyDeleteWall St. is evil. Please don't interpret my comment as in any way supporting it. But yes, I do know some former banking and Wall St. firm executives (up to the level of vice president) who lost their jobs during the 2008 crisis and who then had to take much lower-paying (low six figures) jobs supervising losers like me, my friends and acquaintances. I'm thinking of a handful of specific individuals here. How come I know so many? 'Cause I live in NYC. In two cases new positions had to be created within my organization just to give these Wall St. refugees a job. There was grumbling in the ranks of course. If I lose my job, no one's going to look out for me in that way. But in every case these people turned out to be nice. Breeding, manners, high IQ and all the rest of it. And I'm sure that to them this comedown must have felt tragic.
Consider that even in the rarefied world of monetary policy Fischer’s appointment isn’t unique. In 2012, the British appointed Mark Carney, a Canadian, to be the Governor of the Bank of England, the first non-Briton to ever hold the role.
ReplyDeleteBig deal. Canada has a long history of providing resources to the British Empire. Canadians also have a picture of Queen Elizabeth on their money. Surely that counts for something.
Nassim Taleb has made the same comparison between traditional religious belief and modern economics in his books. He argues that religion has actually less harmful.
ReplyDeleteThis point struck a chord with me. As a teenager, my parents sent me to a Roman Catholic seminary high school. In college I majored in economics.
It has been remarkable to observe how he cabal of social climbers at the top of each belief system have both managed to bamboozle huge numbers of people, including a few very intelligent ones, with credentials and elegant arguments.
I'm still not sure which system of voodoo is more nonsensical.
Another thing I learned in seminary: the root of the English word "prestige" is "prestigium;" the Latin word for "delusion."
"All of this has happened before and it will happen again."
ReplyDeleteHey Steve,
ReplyDeleteThanks for the in depth several day analysis of this debacle. I used to think that I was paranoid about the shadow state...
Nassim Taleb has made the same comparison between traditional religious belief and modern economics in his books. He argues that religion has actually less harmful.
ReplyDeleteIsn't he in fact a practising Christian?
Weak article.
ReplyDeleteAnyways, not only didn't they go to jail, the banking cartel members gave each other biggest in the history bonuses for a job well done.
The dominant elegant argument is the atomic bomb. That argument supports all of the rest. The mystical authority of higher mathematics is dependent upon its unspeakable power
ReplyDeleteNeil Templeton
Sorry, but my eyebrows are raised at this. You state that Fischer was responsible for some economic crash, but I haven't found anything.
ReplyDeleteOkay, so you don't (or most people) don't understand macroeconomics. Plus, it's implausible that Fischer is THE sole individual responsible. He lectures about economic crashes, and yet he's responsible for it?
Doesn't make sense.
I've read this: http://www.j-bradford-delong.net/movable_type/archives/001397.html
And while there may be conflicts of interest, it doesn't seem to be on Fischer's side. Call me whatever you want, I'm just not buying it.
We should remain skeptical.
I'm still not sure which system of voodoo is more nonsensical.
ReplyDeleteNo intelligent person turns to embittered ex-Catholics to make such distinctions.
It has been remarkable to observe how he cabal of social climbers at the top of each belief system have both managed to bamboozle huge numbers of people, including a few very intelligent ones, with credentials and elegant arguments.
ReplyDeleteI'm still not sure which system of voodoo is more nonsensical.
Oh come on, the distinction is simple: one is the product of a centuries-old effort to gain dominion over every human being on Earth, and the other is the Catholic Church.
In their book "A World of Chance", Reuven and Gabrielle Brenner do a good job with the same witch doctor analogy:
ReplyDeleteReligion sustained the perception that decisions in the face of what we today would call incalculable risks are under control, and the rulers of the tribes and the priesthood managed them properly. This proper management was done by priests with exclusive rights to throw dice, bones, or other devices and who taught, at the same time, that a higher authority controlled the outcome of the throw.... The dice [and] bones... were tools used in rationalizing decisions, much as sophisticated geometry was in the hands of astrologers later, or, more recently, as trivial algebra and erroneous statistics have been in the hands of Keynesians and macroeconomists.
The inbred tribalists are beside themselves trying to explain how their witch doctor isn't the real problem, you are.
ReplyDeletePart of the central banker's role is to be the witch doctor who, should his magic prove ineffective, will be pushed aside for a new witch doctor. The previous witch doctor may be discredited, but not the concept of trust in witch doctors.
ReplyDeleteThis essay by Nassim Taleb touches on some points he also gets at in his 3 books:
ReplyDeletehttp://www.edge.org/3rd_culture/taleb05/taleb05_index.html
Only a former seminarian could appreciate how some bloggers refer the Harvard-White House-NY Times nexus as “The Cathedral” like I do.
Just like Mr. Taleb, I prefer the bishops to the Obama elite. As far as I know they aren’t threatening to bomb anyone, they aren’t snooping on anyone’s text messages or emails, and they certainly aren’t a risk to crash the global economy.