professional wordpress themes

REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Are most economists naive?

On October 5, 2010, in Economy, by Tim

[Moving forward to 2007, just after we had moved from Southern California to Murphys, California in the foothills of the Sierra Nevada Mountains, this item from June 11, 2007 was one of many over the years that wondered why economists do the things they do.]

ooo

The conclusion that most economists are naive, sometimes dangerously so, is something that has been hinted around at here for years, but now that the Wall Street Journal seems to concur, maybe it’s time to stop asking the question and just say it.

Most economists are naive.

Or, maybe they’re just too optimistic. Actually, in many cases, the two adjectives describe the same phenomenon – the willingness to suspend belief that something bad is likely to happen (or is already happening) due to a lack of real-world experience.

Merriam-Webster defines the word thusly:

2 a : deficient in worldly wisdom or informed judgment; especially : CREDULOUS
2 b : not previously subjected to experimentation or a particular situation

The nation’s housing market is a perfect example of how this naïveté can be dangerous and, more importantly, expensive. Anyone listening to a raft of predictions last summer or fall regarding the future course of the housing boom, and then taking the plunge after rosy talk of an imminent rebound would be sorely disappointed today.

David Lereah, the recently departed and much-discredited chief economist at the National Association of Realtors, serves as a prime example of this.

(more…)

0 Comments
Leave a Comment

Tagged with: •  






Catch the Swamp Fever!

On October 4, 2010, in Economy, by Tim

[I must say, Austrian Economics has gained a good deal of notice over the last few years, that is, since the global financial system melted down in 2008 and economists realized that you couldn't expand credit forever ... something about "maldistribution". This item appeared here back on June 29th, 2006 as the "other" school of economics (i.e., the one that they don't teach in school) began to rise from obscurity as is clear to see at Google Trends.]

ooo

As we await another monetary policy proclamation from the Board of Governors of the Federal Reserve System, we take note of another Keynesian economist ruminating on the Austrian view of all things monetary, as a priest might occasionally wonder about the existence of God.

In Paul McCulley’s July commentary at Pimco, he ponders the big question that nearly all Keynesians are beginning to ask after Alan Greenspan and other central bankers around the world have been blowing bubbles for the last couple decades, “When does maldistribution of investment catch up with you?”

But, before we get to Mr. McCulley the title of today’s post must first be explained. Swamp fever, or more correctly, “fever-swamp Austrians” was a phrase first noticed here after one Stephen Kirchner responded to the widespread objections to the Fed announcement back in November that they would no longer report the M3 monetary aggregate.

In the memorable Repos and Eurodollars in Stealth Mode post from last year, Kirchner wrote:

As Barry (Ritholtz) notes, this is the sort of thing that excites the tin foil hat brigade and fever-swamp Austrians, but I would suggest that there is a rather innocent explanation. Growth rates in broad money and credit aggregates tend to be dominated by trends in financial intermediation and thus have only a very tenuous relationship with monetary policy and even a somewhat loose relationship with economic activity.

Translation – money supply doesn’t matter to the makers of monetary policy, so money supply just doesn’t matter. It’s not important how much money has been created, what’s important is what shows up in consumer prices.

(more…)

0 Comments
Leave a Comment

Tagged with: •  

The Keystone Inflation Cops

On October 3, 2010, in Commodities, Economy, by Tim

[Here's another one about inflation and owners' equivalent rent from June 27th, 2006 when this kind of stuff appeared here all the time. Of course, the Fed would give their eye-teeth for some good 2006- or 2008-style inflation today.]

ooo

The ongoing debate about the many ways to measure “inflation”, the definition of the word “inflation”, and the ruckus regarding owners’ equivalent rent as it relates to said measures of “inflation” are all starting to make the nation’s economists look like Keystone Cops.

Having never met an economist, and having no particular axe to grind with them as a group, the objections voiced here spring almost entirely from looking at their work through the eyes of an engineer. That is, through a lens of scientific rigor that seems to be completely absent from the dismal science, at least when it comes to that one special word – inflation.

After hearing Steve Liesman on CNBC once say, “I’m an economist, I’m not supposed to make sense”, when responding to a particularly sharp objection to his musing on this subject, a parallel can be drawn to say, an engineer at NASA replying in the same manner when queried on a controversial technical aspect of a Space Shuttle flight. You just wouldn’t hear that sort of answer.

Granted, economics isn’t a hard science, but it’s not astrology either.

(more…)

1 Comments
Leave a Comment

Tagged with: •  

How Not to Fight “Inflation”

On October 1, 2010, in Economy, Housing, by Tim

[I used to write about "owners' equivalent rent" and how it distorts the inflation statistics on a weekly basis a few years ago. Here's a piece from June 15th, 2006, back before it became common knowledge that the Fed had been duped by this measures of the cost of home ownership. BTW - I'm still up there pretty high on a Google Search of the term.]

ooo

The ongoing debate about the significance of owner’s equivalent rent within the consumer price index is yet another example of how hapless the nation’s dismal scientists are as they continue to formulate monetary policy based on flawed measures of “inflation”.

As you’ll recall, most economists restrict the usage of the word “inflation” to mean “core inflation”, which excludes things like energy and food, and since 1983 has utilized Owner’s Equivalent Rent (OER) in lieu of actual costs of home ownership.

To determine OER, instead of measuring what homeowner’s costs actually are – items such as principle, interest, taxes, insurance, upkeep, etc. – the Bureau of Labor Statistics asks homeowners, “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

So, “core inflation” today is made up of about 38 percent housing rental costs – 30 percent OER and another 8 percent reflecting the prices paid by people who actually rent.

If you’re a central banker in an Anglo Saxon country this is a great deal because you can have home prices skyrocket and these costs don’t show up in the consumer price indices. High home prices boost the economy in many ways – many new mortgage lending and construction jobs are created and consumption increases dramatically through easy home equity withdrawal – but they don’t hurt the banker’s bottom line of price stability.

(more…)

1 Comments
Leave a Comment

Tagged with: •  

Mulishly Squabbling Economists

On September 17, 2010, in Economy, by Tim

In Newsweek is a fine column by Michael Hirsh about the general failings of economists in recent years and their lack of critical introspection (what some argue is an unchangeable personality trait for dismal scientists), a piece that is highlighted by the following:

Recently, the National Science Foundation sent out a query asking economists and social scientists to draw up “grand challenge questions that are both foundational and transformative”—a request that one recipient, Andrew Lo, a highly regarded financial economist at MIT, says is a first in his experience. But one problem is that the economics profession “has gotten much more intolerant of divergence from orthodoxy,” says Philip Mirowski, an economic historian at Notre Dame. “The range in which dissent happens is so narrow. In a sense they still cannot imagine the system can operate to undermine itself. That is not a position that is allowed anywhere in the economics profession. The field got rid of methodological self-criticism. This Great Moderation stuff was just arrogance, hubris.” Indeed, the joke on economists, says one of them, Rob Johnson, is that they create simplistic models that depend on people behaving as rational actors motivated by self-interest, yet “they have a blind spot regarding themselves.” The way they squabble mulishly to defend now-indefensible positions is itself evidence of how flawed those rational-actor models are.

It’s a mystery to me how one could write a lengthy article such as this one without once mentioning the Federal Reserve, the body that serves as the overlord for the economics profession, often times playing a critical role in career advancement in academia and elsewhere. But, that’s what Hirsch did…

0 Comments
Leave a Comment

Tagged with:  

German Economist Claims Muslims Inferior

On September 10, 2010, in Our Culture, by Tim

Leave it to an economist to start a book tour to promote his views that Muslims are genetically second class citizens at a time when the world seems to be one big powder keg of religious tension. The Washington Post reports on one Thilo Sarrazin who may or may not know about a certain preacher in Florida who may or may not burn the Koran tomorrow.

The most talked about man in Germany is a 65-year-old economist whose hot new book and sudden groundswell of popular support have the media dubbing him a folk hero. But that is not the only thing they are calling Thilo Sarrazin these days.

Some are also calling him dangerous. Sarrazin, a board member of the German Central Bank until he resigned under pressure Thursday, has divided the nation by postulating the theory that Germany is being “dumbed down” by Muslim immigrants and their children. Wielding statistics and scientific arguments both in his book and in public comments, he delves into territory largely taboo here since the Holocaust, suggesting that “hereditary factors” are at least partly to blame. Turks and Kurdish immigrants, he asserts, are genetically predisposed to lower intelligence than Germans and other ethnic groups, including Jews.

His statements have shocked many in Germany not only because of a national sensitivity to anything remotely smacking of genetic superiority claims in the post-World War II era. What has also shocked many is that so many Germans have rallied to his side as the central bank and his political party have sought to oust him for his pronouncements.

The title translates to “Germany Does Away with Itself”, now closing in on the half-million mark in sales, and Thilo now has 21,000 Facebook friends. While he is no stranger to controversy, you have to wonder whether he thought he was writing the German version of Freakonomics, never anticipating what his political in-correctness might produce.

0 Comments
Leave a Comment

Tagged with:  
Page 8 of 14« First...678910...Last »
© 2010-2011 The Mess That Greenspan Made