Kartik Athreya of the Richmond Federal Reserve Bank argues
that bloggers are stupid, and that only PhD economists have a right to
say anything about economics policy.
This distinction is a little
ridiculous, given that many
of the world’s top PhD economics professors are bloggers.
it must be noted that the Fed ignores any PhD economist who exercises
any scintilla of independence.
of the PhD economists who say the economy won't recover unless we
break up the giant banks are ignored (even if they happen to be former
Federal Reserve chairmen or Fed Bank presidents).
well-known PhD economist James Galbraith is ignored when he argues
that - because fraud caused the economic crisis - economists should
move into the background, and "criminologists to the forefront".
of course, the PhD economists calling for a complete audit of the Fed
or - heaven forbid - a challenge to Fed powers, are ignored.
fact, as I pointed
out in December, most economists don't exercise any independent
thinking because economists are trained
to ignore reality:
I have pointed out numerous times that economists and advisors have a
financial incentive to use
faulty models. For example, I pointed
out last month:
The decision to use faulty
models was an economic and political choice,
because it benefited the economists and those who hired them.
example, the elites get wealthy during booms and they get wealthy
during busts. Therefore, the boom-and-bust cycle benefits them
enormously, as they can trade both ways.
Specifically, as Simon
Johnson, William K. Black and others point
out, the big boys make bucketloads of money during the booms using
fraudulent schemes and knowing that many borrowers will default. Then,
during the bust, they know the government will bail
them out, and they will be able to buy up competitors for cheap
and consolidate power. They may also bet against the
same products they are selling during the boom (more here),
knowing that they'll make a killing when it busts.
It is not like economists
weren't warning about booms and busts. Nobel prize winner Hayek and
others were, but were ignored because it was "inconvenient" to discuss
this "impolite" issue.
Likewise, the entire Federal Reserve model
benefiting the banks themselves but not the public.
Huffington Post notes:
Federal Reserve, through its extensive network of consultants,
visiting scholars, alumni and staff economists, so thoroughly dominates
the field of economics that real criticism of the central bank has
become a career liability for members of the profession, an
investigation by the Huffington Post has found.
helps explain how, even after the Fed failed to foresee the greatest
economic collapse since the Great Depression, the central bank has
largely escaped criticism from academic economists. In the Fed's
thrall, the economists missed it, too.
"The Fed has a lock on
the economics world," says Joshua Rosner, a Wall Street analyst who
correctly called the meltdown. "There is no room for other views, which
I guess is why economists got it so wrong."
problems of a massive debt overhang were also thoroughly documented by
Minsky, but mainstream economists pretended that debt doesn't matter.
- even now - mainstream economists are STILL willfully ignoring things
leverage, hoping that the economy can be pumped back up to
super-leveraged house-of-cards levels.
As the Wall Street Journal
As they did in the two revolutions in
economic thought of the past century, economists are rediscovering relevant work.
is only "rediscovered" because it was out of favor, and it was only
out of favor because it was seen as unnecessarily crimping profits by,
for example, arguing for more moderation during boom times.
powers-that-be do not like economists
who say "Boys, if you don't slow down, that bubble is going to get too
big and pop right in your face". They don't want to hear that they can't make endless money using
crazy levels of leverage and 30-to-1 levels of fractional reserve
banking, and credit derivatives. And of course, they don't want to hear that the Federal Reserve
is a big part of the problem.
Indeed, the Journal and the
economists it quotes seem to be in no hurry whatsoever to change things:
quest is bringing financial economists -- long viewed by some as a
curiosity mostly relevant to Wall Street -- together with
macroeconomists. Some believe a viable solution will emerge within a
couple of years; others say it could take decades.
PhD economist Michael Hudson made
the same point:I
think that the question that needs to be asked is how the discipline
was untracked and trivialized from its classical flowering? How did it
become marginalized and trivialized, taking for granted the social
structures and dynamics that should be the substance and focal point of
To answer this question,
my book describes the "intellectual engineering" that has turned the
economics discipline into a public relations exercise for the rentier
classes criticized by the classical economists: landlords, bankers and
monopolists. It was largely to counter criticisms of their unearned
income and wealth, after all, that the post-classical reaction aimed to
limit the conceptual "toolbox" of economists to become so unrealistic,
narrow-minded and self-serving to the status quo. It has ended up as
an intellectual ploy to distract attention away from the financial and
property dynamics that are polarizing our world between debtors and
creditors, property owners and renters, while steering politics from
democracy to oligarchy...
[As one Nobel prize winning
economist stated,] "In pointing out the consequences of a set of
abstract assumptions, one need not be committed unduly as to the
relation between reality and these assumptions."This attitude did not deter him from
drawing policy conclusions affecting the material world in which real
people live. These conclusions are diametrically opposed to the
empirically successful protectionism by which Britain, the United States
and Germany rose to industrial supremacy.
Typical of this
now widespread attitude is the textbook Microeconomics by William
Vickery, winner of the 1997 Nobel Economics Prize:
theory proper, indeed, is nothing more than a system of logical
relations between certain sets of assumptions and the conclusions
derived from them... The validity of a theory proper does not depend on
the correspondence or lack of it between the assumptions of the theory
or its conclusions and observations in the real world. A theory as an
internally consistent system is valid if the conclusions follow
logically from its premises, and the fact that neither the premises nor
theconclusions correspond to reality may show that the theory is not
very useful, but does not invalidate it. In any pure theory, all
propositions are essentially tautological, in the sense that the results
are implicit in the assumptions made."Such disdain for empirical verification is
not found in the physical sciences. Its popularity in the social
sciences is sponsored by vested interests. There is always self-interest
behind methodological madness. That is because success requires heavy
subsidies from special interests, who benefit from an erroneous,
misleading or deceptive economic logic. Why promote unrealistic
abstractions, after all, if not to distract attention from reforms aimed
at creating rules that oblige people actually to earn their income
rather than simply extracting it from the rest of the economy?
I have previously written, mainstream economists and financial
advisors who promote flawed models are not necessarily bad people:
am not necessarily saying that mainstream economists were
intentionally wrong, or that they lied because it led to promotions or
pleased their Wall Street, Fed or academic bosses.
But it is
harder to fight the current and swim upstream then to go with the flow,
and with so many rewards for doing so, there is a strong unconscious
bias towards believing the prevailing myths. Just like regulators who
are too close to their wards often come to adopt their views, many
economists suffered "intellectual capture" by being too closely allied
with Wall Street and the Fed.
As Upton Sinclair said:
is difficult to get a man to understand something, when his salary
depends upon his not understanding it.
Rivero may have the
hardest-hitting critique of all:
This seems to be a return to
the mindset of the middle ages where only the clergy were allowed to
read and interpret the bible and the laity were presumed incapable of
comprehending the intricacies and subtle nuances of the faith.
indeed there is a great deal of similarity between economics and
[fundamentalist version of] religion in that both depend on the
unquestioning faith of the masses that those pretty printed pieces of
paper represent something real, albeit invisible.
advent of the printing press led people to take a closer look at the
actual content of [fundamentalist version of] religion and it has been
revealed not as a complex and sophisticated system but as a mish-mash
of half-baked myths and legends often in contradiction with itself and
used to enrich the church ....
The same is true of eocnomics. the
advent of the blog has led people to take a closer look at the actual
content of economics and it has been revealed not as a complex and
sophisticated system but as a mish-mash of half-baked theories and math
often in contradiction with itself and used to enrich the bankers and
conceal their fraud against the public. Athreya is reacting to the
blogs the way [fundamentalist] priests reacted to Gutenberg's Printing
The fraud and danger of the Federal Reserve system of
banking stands exposed to the public eye, sans the "benefit" of correct
interpretation by the self-appointed priests of Mammon. The public now
understands that when a private bank issues the public currency at
interest, debt will always exceed the available money supply. The
public now understands that the Federal Reserve is no more Federal than
Federal Express. The public now understands that the Federal Reserve
is a legalized counterfeiting operation, that creates the money they
loan out out of thin air! The public now understands that the Federal
Reserve system of banking, since its creation in 1913, has reduced the
value of a dollar down to about four cents! The public now understands
that the Federal Reserve system is a pyramid scam that only works when
ever larger populations of borrowers can be found, and that once an
entire nation or planet has borrowed to the max, the system must crash
(which is what is happening now).
Just as the [fundamentalist]
priests, stripped of the arcane scriptures and rituals, stand exposed
... so too the economists, stripped of their arcane equations and
theories, stand exposed ....
Karthik Athreya doesn't like that
fact that the public sees the Federal Reserve for what it really is.