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Source link: http://archive.mises.org/13157/fed-economist-ignore-macro-bloggers/

Fed Economist: Ignore Macro Bloggers

July 5, 2010 by

Economics is Hard. Don’t Let Bloggers Tell You Otherwise by Katrik Athreya, a research economist at the Fed can be summarized “Kids, don’t try this at home. Economics requires adult supervision.”

The following is a letter to open-minded consumers of the economics blogosphere. In the wake of the recent financial crisis, bloggers seem unable to resist commentating routinely about economic events. It may always have been thus, but in recent times, the manifold dimensions of the financial crisis and associated recession have given fillip to something bigger than a cottage industry. Examples include Matt Yglesias, John Stossel, Robert Samuelson, and Robert Reich. In what follows I will argue that it is exceedingly unlikely that these authors have anything interesting to say about economic policy

The reason for this is that economics is hard, or, to quote Athreya, “not, by any reasonable measure, simple”, “very complicated”, “far, far, more complicated than most commentators seem to recognize”", “takes enormous effort”.

Athreya’s critique of non-professional bloggers is primarily the field is so complex and subtle that no one without specialized Ph.D.-level training from “a decent economics department” is likely to even understand the terms of debate correctly, not even to make a contribution to it. In contrast to bloggers who have no external checks on what they write, the self-identified scientific community of economists rigorously enforces high internal standards through peer review:

The punchline to all this is that when a professional research economist thinks or talks about
social insurance, unemployment, taxes, budget deficits, or sovereign debt, among other things, they almost always have a very precisely articulated model that has been vetted repeatedly for internal coherence. Critically, it is one whose constituent assumptions and parts are visible to all present, and can be fought over. And what I certainly know is that to even begin to talk about the effects of unemployment, debt, deficits, or taxes, one has to think very hard about many, many things. .. Comparing, even momentarily, [the careful work of certain economists] its explicit, careful reasoning, its ever-mindful approach to the accounting for feedback effects, and its transparent reproducibility, with the sophomoric musings of auto-didact or non-didact bloggers or writers is instructive.

What Athreya is saying is not so different from the view of Murray Rothbard , who said, “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.” People who write about economics should first become educated about the subject matter.

Many of the writers and bloggers on this site have a Ph.D. in economics (although I’m not sure whether the institutions where they studied would qualify under Athreya’s standard to enter the select who can “meaningfully advance the discussion on economic policy.”). But I can cite numerous examples of writers in the Austrian camp who do not have economics doctorates who have meaningfully advanced the discussion: Henry Hazlitt; Lew Rockwell; Thomas Woods (a historian). Some other non-Ph.D.-accredited economic writers in the financial sector that I follow are David Tice and Doug Noland, Sean Corrigan, Doug French, Fred Sheehan, James Grant, and Gary North (a Ph.D. historian). I like Stossel as well.

Athreya is probably right to the extent that he is saying that the models taught at most university economics departments are so complex and specialized that anyone who has not taken the coursework probably does not understand them. But where I think that he goes wrong is to identify the study of university macro with learning economics. Economics, as we see it, is the understanding of human action under conditions of scarcity. Many of us in the Austrian camp believe that the field of economics, macro in particular, went off the rails in the mid-30′s under the influence of Keynes. By Keynesian thinking I mean the meta-model underlying most modern macro models: the focus on very high levels of aggregation, the focus on consumption, the lack of capital theory, the lack of an explicit model of inter-temporal coordination through the interest rate, and the obsession with sticky prices. Athreya defines a meaningful advance in the discussion of economics in terms of the models that are taught at university economics departments, which for the most part inherit the problems with the Keynesian meta-model.

Those of us who have been influenced (to a greater or lesser extent) by the original thinkers of the Austrian school need a place on the net to discuss what is going on in the world according to our view of how things work. The general lack of availability of university training in Austrian economics ensures that most of the commentary in this area is going to come from non-university trained writers. Some of the time we may take on the mainstream, but other times we only want to have our own internal discussion among people who share the same starting point for analysis.

I have no reason to doubt that he is correct the self-appointed priesthood of macro enforce high standards when it comes to a discussion within their own frameworks. Writing at length, as Athreya does, about how difficult it is to master those models, does not address the point that the intellectual framework underlying those models may be fatally flawed for reasons that are not nearly so difficult to understand as the models themselves.

I also would fault Athreya for not making a clear distinction between pure economics and policy analysis. Mises wrote“There never lived at the same time more than a score of men whose work contributed anything essential to economics.” Mises would no doubt agree with Athreya that making an advance in fundamental economics is hard. But many of us who blog as not trying to make make an original contribution to the field. We are trying to apply the thinking of Mises and the other great original thinkers of the Austrian tradition to current events. But most bloggers are not trying to make fundamental advances in economics (at least not in our blog posts); we are usually observing the world around us and attempting to explain some features of it using our understanding of economics.

Update (Jul 5 2:46 pm)It occurred to me after I wrote this that one reason many people have opinions about economics, compared to other specialized fields such as cancer research and geology is that the economic thinking is very influential in the choice of economic policies, and economic policies affect us all. Geology, while it may affect us all, is not influenced by policies and cancer research affects a relatively small number of people. Mises wrote that everyone has a share of responsibility for the direction of society.

{ 10 comments }

Bruce Koerber July 5, 2010 at 10:39 am

I would be very interested in hearing Katrik Athreya explain how the counterfeiting by the Federal Reserve is good macroeconomics! Let’s hear his ‘expert’ opinion.

Guard July 5, 2010 at 10:40 am

The economic models and issues are, no doubt, quite complex. The moral issues are not. Theft and murder have been understood for thousands of years. A point not addressed in the article (this is not a criticism, just observation) is that the “it’s just too complex for the layman” argument is often used in an attempt to invalidate basic moral principles. E.g. we just have to steal from people and blow up other countries, and if you don’t agree, it’s because of your lack of education. The old “trust us, we’re the experts” argument.

Jorge Borlandelli July 5, 2010 at 12:39 pm

Good point Guard!!!

fakename July 5, 2010 at 11:56 am

If economics is so hard, then why don’t the experts teach the laymen, instead of putting up ever greater barriers to learning economics? If the author doesn’t think most laymen are even slightly knowledgeable on economic theory or policy, then shouldn’t the author redouble his/her efforts?

Jorge Borlandelli July 5, 2010 at 12:37 pm

Economics is simple, human nature is complicated. The complex models are the justification for their cushy tenured positions in the same sense that Keynesian economics was the justification for what politicians were already doing, taxing and spending like drunken sailors (with the usual apologies to sailors who most of the time are spending their own money).
Simple does not mean evident though and it needs coherent reflection, specially when we do economic history (the application of economic theory to actual events).
When you here from someone who is presented as an “independent” economist, follow the money and adjust his opinion accordingly.

Donald Rowe July 5, 2010 at 2:07 pm

“Economics is simple, human nature is complicated.”

Human nature is not so complicated either. First, survive at all costs but keep the costs as low as possible because your need to survive is continuous. Second, keep what you have worked to acquire unless keeping it impairs your survival.

These operate without needing to even be understood. It would be helpful if more people could understand that voluntary cooperation, free trade, and even sharing can be employed to the ends of surviving better and with less effort. The question should be how may that understanding be brought about?

mushindo July 6, 2010 at 10:46 am

The disconnect bwtween micro and macro in my own university studies was profound:

the bogstandard micro models and analysis of supplydemand schedules under various conditions , for all th eshortcomings in th emodelling, still yielded good insights, and they time and again led to the same conclusions: Interventions like subsidies, taxes, quotas and other such things always lead to distortion and a less-than-optimal market outcome.

Then going next door to the macro classes (at undergrad level, sometimes with the same professors or at least professors from the same department) the difference was profound: out of th eone side of their mouths they blithely declared that macro’s modelling base is a rigorous aggregation of the micro general-equilibrium model framework, and together they form the ‘Neoclassical synthesis’, fraudulently sold to us as an internally consistent master framework. But – heres the kicker – just about all of the macro coursework was predicated on the unstated assumption that policy intervention is axiomatically Right and Good, and the only debate to be had was ‘what kind of intervention should it be?’ This debate was cast in keynesian vs monetarist terms, in which both protagonists argued off the same theoretical framework , and their differences turned on whether this or that curve was horizontal or vertical. The Keynesian prescription was fiscal policy, and monetarist , er, monetary policy based on their beliefs about the nature of the IS/LM and AD/AS curves. I had never heard of Mises or Rothbard until after I graduated, and Hayek was only ever mentioned once, in passing.

Now I understand that there is no practical difference between fiscal or monetary policy, they both lead to the same malign effects, always and everywhere. With hindsight, I have come to regard this sterile and artificially constructed ‘macroeconomic policy debate’ as a shabby little sideshow, akin to presenting the debate over evolution as a battle between young-earth and old-earth creationists, while studiously ignoring Darwin. O the shame of it!

Walt D. July 6, 2010 at 11:28 am

A classic “appeal to authority” fallacy. The little boy in the crowd needs a Ph.D. to determine that the Emperor has no clothes.

P.A. Dursey July 20, 2010 at 2:02 pm

It’s clear that Athreya doesn’t understand the nature of knowledge. Nor does he understand that as a “traditional” initiate to the Economics PhD guild, he’s effectively removed himself from legitimate, independent, merit based inquiry and thus producing a independent thought. This is why he feels compelled to make such fallacious pronouncements. He must feel compelled to promote his guild’s position: that they must have a monopoly on knowledge, this is classic cultist psychosis. Monopoly and truth are by definition mutually exclusive. This position, like any form of monopoly springs from an amalgam of the basest motives: peer sanction, group think and force. That the original role of colleges and universities was to produce religious leaders, makes clear the source of profligate demagoguery regurgitated by Athreya.

The one legitimate path to the PhD degree, is honest work, independent thought, achievement and is granted honorarily.

Heraclitus said this of Pythagoras, the founder of the Pythagorean cult of scholarship: “…practiced inquiry more than other man, and selecting from these writings he made a wisdom of his own – much learning, mere fraudulence.” And further that “much learning does not teach thought.” These truths are as relevant now as they where when they were written more than 2500 years ago; as are the essential natures of both knowledge and men.

Athreya and those like him have no intimacy with knowledge, truth and wisdom and instead become consumed with managing appearances and conjuring illusions solely to impress and thus influence the unthinking mob. A sad and dark existence indeed.

David December 27, 2010 at 4:55 pm

Keynesian models are extremely popular amongst governments precisely because they provide politicians with apparent justification for stealing from the populace, while obfuscating the nature of the theft to a degree that most people don’t realize they’re being stolen from. It’s thus perfect for politicians, and that’s why it resonates with them. The people who benefit from these models would rather the public didn’t understand them at all, since the public might realize that a massive ongoing theft has been taking place. Leaving policy to “experts” like Keynes is precisely what got us into this mess — how many more economies have to crash before people acknowledge that Keynes is thoroughly discredited?

As Guard points out, the moral issues – theft is wrong – actually trump all else.

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