I ran across this blog on the esteemed Ludwig von Misis and found it incredibly funny. It quotes a government economist, Kartik Athreya, of the Federal Reserve Bank of Richmond, who probably does incredible feats of regression analysis all day long running from office to office and meeting to meeting reporting his latest finding to save the world from economic collapse. Mr. Athreya warns of “economics” bloggers who talk of how easy economics is. I guess he is referring to me and others like myself who try to deprogram the Keynesian indoctrinated masses.
First Mr. Athreya I have had differential equations and the graduate programs with degrees thank you. I do understand partial derivatives and I confess I am in awe of the academic skills of some of our best economist and their published papers. Very few people understand economics at the highest levels of our humble science. But a academic understanding of higher mathematics can translate very poorly into real world economics. You may be intimately familiar with the upper reaches of regression analysis but I am intimately familiar with real world economics.
I have worked as a project manager, building inspector, construction for a few decades. Even though I am currently a professor of economics it is only because of the devastation to my industry caused by Greenspan, Bush and Keynesian economics. If you saw me you would understand I am not exactly your typical “office” person. I will tell you the average construction superintendent has more economic sense in them than the entire White House staff. Hands down not even close. Slam dunk.
I spend my time in my class trying to deprogram my government educated zombies who spout out “tax cuts lead to deficits” and other nonsense. I have to explain to them there is no money tree and Obama is not Jesus sent from heaven to give everyone a free meal. I try to get them to acknowledge that poverty is not a function of a Democrat or Republican president. I do the best I can to get them to accept facts and discount Keynesian economics as much as possible.
One of the areas we cover is the Federal Reserve and how our currency has devalued 92% since 1913. We talk about the damaging effect the Federal Reserve had in 2003 at the beginning of the housing bubble by setting the Federal Funds rate at 1%. We discus how Alan Greenspan did the right thing in the late 80′s and early 90′s during the Savings and Loan bubble by raising the Fed Funds rate to 8.9%. And how he correctly predicted the NASDAQ bubble in 1997 with his “irrational exuberance” speech. And how in 2003 he was the equivalent of a fireman showing up at a five alarm fire with a hose spraying gasoline on the fire.
We talk about how the Federal Reserve contracted the money supply 25% from 1929 to 1933. We talk about how the Federal Reserve doubled the reserve requirement from 7% to 14% for county banks in 1937 devastating the meager recovery. And lastly we talk about 1837 to 1913 when there was no Federal Reserve and how the nation prospered.
As far as economics being complex yes it certainly can be. But teaching people fairy tales like The Means to Prosperity, no matter how well intentioned, discredits the profession. I agree with Mr. Terrell that trying to prove the impossible over there at the Federal Reserve requires amazing feats of mental gymnastics and rationalization. And that it is a complete waste of time and money. You would be so much more productive using that great mind of your sweating it out in the hot sun, reading a set of building plans and creating something for the good of humanity.
So those of you that read this blog rest assured that while I do not have a Federal Reserve job I do most assuredly know economics and how it affects the peasants of the world.
Mises Daily: Wednesday, July 14, 2010 by Sterling T. Terrell
“The truth is that economics is so hard for Kartik Athreya because he is trying to do the impossible.”
I stumbled across an interesting article a few days ago. Written by Kartik Athreya, of the Federal Reserve Bank of Richmond, the article is titled “Economics is Hard. Don’t Let Bloggers Tell You Otherwise.”
The abstract of the paper declares,
In this essay, I argue that neither non-economist bloggers, nor economists who portray economics — especially macroeconomic policy — as a simple enterprise with clear conclusions, are likely to contibute [sic] any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public.
To start, I might propose that the open-minded public ignore economists and organizations that are unable to run a spell-checker over the word “contribute.”
But that takes me away from the issue.
If by “hard” Athreya means that economic concepts, and results, are sometimes counterintuitive, then I can agree. Examples include the following:
* Giving the poor cash payments will result in fewer poor people — False.
* Or, setting limits on rent prices will make housing, overall, more affordable — Also false.
But that is not what Athreya means. He means that economics is so scientific and complex that the untrained economist (or a trained economist who simplifies the explanation or policy result) has nothing meaningful to contribute.
He continues in discussing the public commentary, or lack thereof, that took place after the Tsunami in East Asia and the earthquake in Haiti:
Everyone understands that seismology is probably hard enough that one probably has little useful to say without first getting a PhD in it. The key is that macroeconomics, which involves aggregating the actions of millions to generate outcomes, where the constituents pieces are human beings, is probably every bit as hard. This is a message that would-be commentators just have to learn to accept. For my part, seventeen years after my first PhD coursework, I still feel ill at ease with my grasp of many issues, and I am fairly confident that this is not just a question of limited intellect.
The truth is that economics is so hard for Kartik Athreya because he is trying to do the impossible. He still feels ill at ease in his profession, after seventeen years, because he is trying to explain the economic aggregates of entire states and nations with the tools he learned in Calculus III, Econometrics II, and Linear Algebra I.
This all reminds me of the scathing critique that Nassim Nicholas Taleb leveled in his book The Black Swan about the infiltration and paralyzing reality that rationality became to the world of mainstream economics:
It involves complicated mathematics and thus raises a barrier to entry by non-mathematically trained scholars. I would not be the first to say that this optimization set back social science by reducing it from the intellectual and reflective discipline that it was becoming to an attempt at an “exact science.” By “exact science,” I mean a second-rate engineering problem for those who want to pretend that they are in the physics department — so-called physics envy. In other words, an intellectual fraud. (p. 184)
For a short explanation on the limits of macroeconomics, I recommend reading “The Limits of Macroeconomics” by Roger Garrison.
For a slightly longer one, I recommend a quick reread of Human Action by Mises himself.
Additionally, I will say that recent macroeconomic developments have been easy to understand. People bought homes they couldn’t afford with the blessing of government officials. This was encouraged by the likes of Fannie Mae and Freddie Mac, and a Federal Reserve in love with a cheap-credit policy. Now, it is all being made worse by increasing regulations, higher taxes, fiscal interventions, and unneeded bailouts.
Meanwhile, I will continue to repeat that all people will be made better off in the long run by lowering taxes, easing regulations, stopping fiscal-policy interventions, and not giving the state the power to print fiat money.
And Kartik Athreya can go on making “quality” contributions to macroeconomics by recalculating the fiscal multiplier, mathematically tweaking the Phillips Curve, and taking integrals under the IS-LM curves.
Sterling T. Terrell is an economist and writer living outside of San Antonio, TX. Send him mail. See Sterling T. Terrell’s article archives.
Comment on the blog.
You can subscribe to future articles by Sterling T. Terrell via this RSS feed.
You can receive the Mises Dailies in your inbox. Go here to subscribe or unsubscribe.