Remember the Fed economist who said all bloggers are idiots, and only Ph.D's are smart enough to understand why the market can go up 4% on double dip depression news? Neither do we. But the following obliteration of the Richmond Fed's errand boy by GMO's James Montier, who is once again back to posting on his blog http://behaviouralinvesting.blogspot.com, is completely worth the read.
Barbie does economics!
The sheer hubris of many in the economics profession never ceases to amaze me. Take for instance a recent paper by Kartik Athreya of the Federal Reserve Bank of Richmond entitled “Economics is Hard. Don’t let Bloggers Tell You Otherwise”. In a move that is eerily reminiscent of the controversial talking Barbie of the early 1990s who fatefully uttered “Math class is tough”, Athreya’s short paper essentially lays out a quite staggering claim :- that economics should be left to those with a PhD in the subject!
Athreya describes himself as “a worker bee chipping away with known tools”. He goes on to say “writers who have not taken a year of PhD coursework in a decent economics department…cannot meaningfully advance the discussion on economic policy”. You’ve got to love the ‘decent’ in that sentence – it wreaks of intellectual snobbishness of the highest order.
In fact, Athreya’s ire isn’t limited to what she sees as uninformed debate, he seems to object to anyone who attempts to make the policy issues of the day clear even if they have a PhD. He pejoratively describes both Paul Krugman and Brad DeLong as “Patron saints of the Macroeconomic Policy is Easy” movement.
He argues that we won’t expect particularly informed discussion on the causes, consequences and treatments for cancer from non-Oncology specialists, so why we would we expect non-specialists to offer any useful debate on economics.
However, the analogy is false. Modern medicine is based on scientific principles and follows an evidence based approach. Even then some estimate that the majority of published findings in medical journals are false!
Economics starts from a far worse place. It isn’t a science, and often seems more interested in twisting the facts to fit a theory rather than the other way around. In fact, as Nassim Taleb has pointed out, economics is more akin to medieval medicine than its current practice, “Medicine used to kill more patients than it saved – just as financial economics endangers the system by creating, not reducing, risk.”
The idea that what we need is more ‘worker bees’ gaining their PhD’s from conducting ‘angels on a pin head’ like work based on minor alterations to previous research makes me want to cry. Where were the warnings from the orthodox economics establishment ahead of the global financial crisis? Oh, that’s right there weren’t any.