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How To Spot Groupthink Among Economists
As GMO's James Montier says in his latest white paper today "it seems one can hardly open a financial newspaper or read a blog these days without tripping over some academic-cum-central banker talking about the once arcane notion of the equilibrium real interest rate."
Sure enough, it is the laughable concept of the equilibrium real interest rate (laugable because if it can be quantified and put into an equation, it becomes tangible and central banks are convinced they can recreate it, perfect it and implement it to "fix the economy"... usually with disastrous results) that is the topic of his latest must read piece "The Idolatry of Interest Rates Part I: Chasing Will-o’-the-Wisp", which not only makes a mockery of central planners but also the intellectual conceits they all hold so dear, and which they will all hold dear all the way until the now inevitable collapse of "New Keynesian" economics.
And while there is much to discuss in his full 13 page paper, the following excerpt discussing how to spot groupthink in crowds (of economists) is what we found most relevant and amusing, perhaps because the entire world is now caught in a groupthink mode, and what's worse, a groupthink that is peddling the wrong solution to the worldwide problem that can be summarized as simply as "$200 trillion in debt."
From Jim Montier:
Wisdom of crowds or groupthink extraordinaire?
One could take the view that so many bright individuals all coalescing around a single framework was evidence of the wisdom of crowds. However, rather than representing the power of consensus, it appears to me to be evidence of extreme groupthink – it is very telling that not one of the aforementioned luminaries has questioned the framework itself.
One of the preconditions for the wisdom of crowds to hold is that people must be independent. This clearly isn’t the case with the above coterie of economists, many of whom trained at the same university under the same teacher. As Steve Keen pointed out, “If I were describing a group of thoroughbred horses, alarm bells would already be ringing about a dangerous level of in-breeding.”
The term “groupthink” was coined by Irving Janis in 1972. In his original work, Janis cited the Vietnam War and the Bay of Pigs invasion as prime examples of the groupthink mentality. However, modern examples are all too prevalent.
Groupthink is often characterised by:
- A tendency to examine too few alternatives;
- A lack of critical assessment of each other’s ideas;
- A high degree of selectivity in information gathering;
- A lack of contingency plans;
- Poor decisions are often rationalised;
- The group has an illusion of invulnerability and shared morality;
- True feelings and beliefs are suppressed;
- An illusion of unanimity is maintained;
- Mind guards (essentially information sentinels) may be appointed to protect the group from negative information.
Perhaps it is just me, but these traits seem to pretty much capture the nature of mainstream economics these days.
No, not just you, although you forgot one bullet point:
- When all else fails, blame weather.
Incidentally, the exact same groputhink checklist was applicable to the economic plenary committees during the USSR's increasingly more "successful" 5 year plans, until one day they mysteriously ended.
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And don't forget to bow down to Gruppenfuhrer Obama.
Banning cash and pushing rates negative seems to be a perfect example of what the author is referring to. The consequences seem simple but they choose not to look at history or what may happen in the future as a result of such actions, or they do know and they're goals are wildly different from what we might expect.
Groupthink among economists only? Heck most of Western Civilization is in groupthink. Everything is Awesome! TM Remember.
Guys, again, let's think a little deeper here. It's not so much that they all believe it to be true, it's because they all NEED it to be true.
First off, the alternative to the current "low interest rates will stimulate the economy" (i.e. throw money at anything that moves) is what, exactly? Either it doesn't stimulate the economy or has no effect. Leaving them in a heluva lurch.
But this is small beans. Here's what really matters: their own self-interest.
If this argument (fairy tale) is shown not to be true or correct, their little ivory tower crashes down, their plum positions get vacated for another, their friends experience similar catastrophe and their self-supporting power network will be swept away and replaced with another, including their buddies in "academia" from which they sprang.
Given that even the slowest-witted among them must by now realize this fantasy of money printing stimulating the economy didn't work and is NEVER going to work, they have no choice but to either circle the wagons and close ranks or start getting picked off one by one. They are a union, a cabal, a society and, as such, must provide a united front, unassailable by mere facts.
The word has already been spread: hang together or hang separately. For this and other reasons they MUST have groupthink.
Great post NoDebt. A throwback to the old days in that post!
Not like one of them can actually come out and say that our currency system is an exponential function that collapses when it cannot continue to expand exponentially.
Economics COULD be a useful profession.
Just like you can model the odds in a casino.
But, in a casino they don't change the rules all the time midgame and pretend they operate under the existing ones.
pods
I would like to level the same criticism at Ray Kurzweil and his cartoon-assisted Singularity comedy routine.
Bingo. The Fed and their kind primarily, then the members, then the favors. If the Fed truely believed they know how to steer the economy they could do it with software on a "if this, then this" program. Then forego the leaked speeches, interviews, and data that moves markets at their command. This is what matters to them and why they should go.
Washington will not touch it as they (those that matter) are in the favor group. Fed member banks will continue to be paid the 6% divy, interest on the reserves and have rates set to induce lending/forever profit without effort. The Fed themselves will always receive the insider windfalls, move the markets for themselves, their kind, maintain a 5 Star operating budget, all at taxpayer expense as they convert fiat to real taxpayer operating money via interest. They made themselves to big/fearful to be accountable/audited.
? Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds
Monkey see, monkey do. Animals can not talk. They have no choice but to gamble on what is going to happen next around them. Doing the same thing over and over again in your life can work out.
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Objectively, I do not think herd mentality is a bad thing. It seems to flow naturally for man as a direct consequence of the family unit.
Each man is alive because his mother picked his bloody body off the cold ground rather than just getting up herself and leaving the whelp in shock for the wolves to clean him up.
Every child seeks recognition and protection. The best gamble is to copy mom and dad. What else can he do?? If Mama Bear jumps over the log, then the odds are that Mama Bear made it and it would be safe for Baby Bear to do the same. The alternative of being left alone is daunting. Kids also learn to read body language. The welp spends the beginning of his life feeling and hearing in the most intimate way possible the body of his mother. When she is scared, the unborn brat feels the constrictions, the racing heartbeat and the whooooshing of her blood swirling chaotically all around him. When she is calm and at peace, he is lulled into sleep living solely in the now --- with not a care in the world. I can not think of any other physical experience like that.
The beginnings of life outside the womb are confused by language.
The family unit could be considered a small-scale manifestation of herd mentality and probably could not survive otherwise.
Obama bowed down to Wallstreet, not the other way around. Wallstreet holds the power, not the government. The gov is simply a collection of yuppies trying to make as much cash as possible by selling their vote to the highest bidder.
Much like the mases that vote their wallets. Hmmmmm?
Anyone who quotes Keynes or Krugman.
Anyone who speaks about aggregates as a cause rather than an effect.
Anybody who has ever herded cattle knows how it works, you get the leading steer moving and the rest of the herd will follow. Krugman is the lead steer and doesn't see the cliff he's taking the herd over.....
This is just a thought. There are way too many economists in American society, business and academia. Seems every bank employes dozens of economists, all universities have economics departments and classes, all corporations keep a bunch of economists on the payroll, they are all over the media and journalism. I listen to hundreds of them over the years, nearly everyone of them has been seriously WRONG. Before 2008, nearly no sane economist dared predict disaster, only a few internet bloggers, like Mish and ZH, were sounding warnings. The Feds highly pad economists did not see any of it coming, few if any academic economists voiced concern. Yet they all kept their jobs and pay. How come? If I fuck up on the job, I pay a high price!
Peter Schiff and Kyle Bass were pretty much called "kooks" as well...
you are correct however and I get what you are driving at, specifically, the bailout/entitlement culture.
Because their real job is to provide cover for the impossibility of creating a managed economy without turning it into a mangled economy.
So... as long as their lips don't quiver when they lie, they haven't fucked up.
Which is why they now have Stone-faced Yellen in the puppet chair.
It's simple, they were doing what they were told. They were told to put forth talking points to reinforce the narrative that "everything is awesome". If they are Keynesian economist than they believe their own bull shit anyway.
Reminds me of when the bean counters started becoming ceos back in the 1970's.
It was fashionable for a dcade or so until they had run those businesses into the ground.
Weinstock at GE(UK) was a posterboy for it, used to pay suppliers yearly,drove many
into bankruptcy..
Let's be clear, eCONomics is a social "science" and honestly the laws of Nature and physics really don't give a shit.
All this financiallization has simply resulted in far too many overcompensated useless fucking paper-pushers between the printer/computer and the producer/consumer in the real economy.
fuck em.
This seems to overlook the fact that economists have an agenda and massive conflicts of interest. Economists understand that their opinions actually influence the outcomes, so attempt to guide the outcome in a "favorable" direction.
An economist without exposure (MSM appearances) is not worth his Galt.
Economist espouse propaganda without a proper gander at the data.
Economics- a disgusting abortion masquerading as an academic "discipline".
Just for laughs read Alan Blinder - 'noted' 'very important' Princeton 'economist'.
This assclown is everything wrong with MSM economist tribe - total disregard for reality since he has never experienced it other than tooling for anus in Boston apparently.
It is a mutual admiration society, degreed but unwise.
Their arrogance, their belief that they know better than the markets, will be the downfall of this country.
A Federal Reserve, unelected, making decisions that topple the country...a country based on democratic and representative republicanism.
Ironic isnt it?
Economists, bureaucracies, political parties, climate scientists, etc. Don't stop at just economists.
Generally, the ruling and self-described intellectual elite.
The world in which we currently reside.
How does an equal sign accommodate different time intervals? Credit as money doesn't flow, it cycles as per the engineer Major Clifford Hugh Douglas. There is no real way to know the recall rate of Credit. Law can change too. For example MBS were a law change that came about with SPV legal entities.
Some bonds create new credit. Some bonds acquire existing money. How about channeling? Some channels are productive some channels destructive.
Keynes was asked how many people understood the money system. His answer was, about 10 people worldwide.
An economics education is prima facie evidence of lack of real understanding.
It took the Bank of England to fess up and tell economists that credit as money disappears, and still their econ text books are not fixed.
This sort of Chicanery is due to banker usury funding which Channels into university departments to then hypnotize the students. Don't follow along with the game then don't graduate
The money system has to be shit canned. It was born as fraud and still is.
sovereign money. eu
Q: How do you identify GroupThink among Economists
A: You listen to them.
The main issue is that there is a drought of alternatives in mainstream thinking, generally, not just in economics.
The Powers That Be choose one 'orthodox' solution, and that's it. All other ideas must be crushed.
This is what you get when you allow education to be funded by government. The government chooses the most flattering of the offerings and funds it. All other schools of thought are punished.
It creates, in a word, DOGMA.
A WORLD of DOGMA.
In academic medicine the smart guys eat the almost as smart guys for lunch. Very little 'wrongness' is tolerated.
Economics is more like art school. How you 'feel' about the data is as important as the precision of the data. 'Dismal' seems inadequate in describing the field of economics.
The level of groupthink among central bankers is amazing and, worse yet, they don't even acknowledge it. Stanley Fischer was Mario Draghi's teacher, they all studied from the same books at the same schools (Princeton, MIT) and they all use the same mental models to understand the world. Even with years of evidence showing they are creating asset bubbles instead of real economic growth, they soldier on. 20 plus years of QE and ZIRP in Japan = FAIL. Social welfare state = FAIL. Ability to foresee bubbles or understand monetary policy's contribution to bubbles = FAIL. Ability to see that post bubble deflation must be tolerated to correct excesses = FAIL. Ability to accurately understand the massive rise in the cost of housing, healthcare and education that have created a nation of debt slaves who have borrowed from the future causing the economy to grow more slowly = FAIL. Ability to see the unintended consequences of extreme monetary policy = FAIL. Hubris in declaring victory while still maintaining unprecendented stimulus =WIN
i just look for the funny little hat.
That's my tell. YMMV.
Steve Liesman, Ron Insana, Scott Nations, and the other recovery cheerleaders at CNBC are a prime example of "group think"
Steve Liesman, Ron Insana, Scott Nations, and the other recovery cheerleaders at CNBC are a prime example of "group think"
Imagine Ben Bernanke taking over from Alan Greenspan in 2006.
He asks 25 of the FED’s top economists to produce 1000 page reports on the current situation.
He reads all 25,000 pages and concludes everything is fine.
The problem.
Alan Greenspan recruited Ben Bernanke and all the economists within the FED so, basically, they all think the same thing.
Now imagine, Ben Bernanke, realised that all the FEDs economists were all pretty much on the same wavelength but he still commissioned the reports.
He then just read the summaries of these reports. In the time he saved he went home and read the paper and watched the TV to get an idea of what was really going on.
In 10 minutes he came across his first ad for a NINA (No Income No Asset) mortgage, in 20 minutes he had seen 2 ads .........
Ben then realised something was seriously wrong, mortgages based on no income and no assets. WHAT!
Following this through he discovered securitisation, CDOs etc ..... and the 2008 crash was averted.
Canning bash isn't good either.
The US adopted UK style variable interest rate mortgages but did not look at the UK housing market to see if they cause problems.
A bit of research would have shown they are very interest rate sensitive and cause major problems when interest rates rise rapidly.
The last housing crash in the UK was in the early 1990s due to rising interest rates and our variable interest rate mortgages.
The FEDs group think economists all study the US housing market, ad infinitum, not realising things have changed in the US where mortgages rates had been fixed for the full term making the historic US data almost useless.
Due to the lack of relevant research the FED decides (at the same time as the introduction of variable rate mortgages) to control the economy through interest rates.
After the dot.com crash it lowers interest rates to get the economy going again.
Great deals come on the market from the new variable rate mortgages.
BOOM
The FED notices the economy is over-heating and raises interest rates forgetting the two year lag of the new mortgages.
CRASH.
HOW TO SPOT GROUPTHINK AMONG ECONOMISTS
I skipped the article but am willing to go at 10:1- Answer: They're In a group
Yep, that's world class exceptionalism for ya. The groupthink list sums it nicely.