Smith's argument: Mainstreamers aren't wroth much for prediction and even firms don't hire economists to advise them using standard macro (DSGE) models. Moreover, our models are assumption dependent so they be made to say anything. But everyone else in the field but is crazy, so it is better to listen to us in policy formulation since we are the least damaging alternative, and you have to do something.
Talk about morons, or just incompetents. This is one of the most doofus arguments I can recall lately, other than President Obama's argument that he is saving the middle class by cutting their benefits so the wealthy (donors) can have more. But that is more craven specious than doofus.
Smith really believe this nonsense which has been shown to be false empirically by a number of economists that Smith thinks are crazies. See Dirk Bezemer, “No One Saw This Coming”, July 2009, and James K. Galbraith, Who Are These Economists, Anyway? Fall 2009. What does Noah Smith not understand about doing the research before making a fool of yourself? Who awarded this man a PHD? Maybe this is why the profession is so lacking. Ignorance, insularity and arrogance are institutionalized?
OK, I confess I am a more than a bit exercised over this. But I think I have a right to be. Policy errors attributable to policy formulation based on mainstream macro models have cost the global economy trillions measured in USD, and the trillions are still mounting up. And those trillions do not tell the real story of human misery, social turmoil, political unrest, and economic instability by any means. But economists do understand, or should understand waste measured in trillions, even if they do not look out the window to see what the actual sources of the data is in ruined lives and desperate futures.
Heterodox economists warned well in advance about the outcomes predicted by their modeling and they have suggested how to repair the damage based on their models also. The mainstreams. Still pretending that no one but them is to be trusted with the keys to knowledge. Noah Smith is just the latest example of this arrogant attitude. It's time that they were called out on it and I am calling them out.
OK, I confess I am a more than a bit exercised over this. But I think I have a right to be. Policy errors attributable to policy formulation based on mainstream macro models have cost the global economy trillions measured in USD, and the trillions are still mounting up. And those trillions do not tell the real story of human misery, social turmoil, political unrest, and economic instability by any means. But economists do understand, or should understand waste measured in trillions, even if they do not look out the window to see what the actual sources of the data is in ruined lives and desperate futures.
Heterodox economists warned well in advance about the outcomes predicted by their modeling and they have suggested how to repair the damage based on their models also. The mainstreams. Still pretending that no one but them is to be trusted with the keys to knowledge. Noah Smith is just the latest example of this arrogant attitude. It's time that they were called out on it and I am calling them out.
Noahpinion
A world without macroeconomists?
A world without macroeconomists?
Noah Smith | Assistant Professor of Finance, Stony Brook University
17 comments:
+1
Give 'em Hell Tom.
He's been told repeatedly by me and others on his site that quite a few economists forecasted the GFC. His response is always no response at all, but that makes sense when you consider his area of study is financial bubbles. If models already exist outside the mainstream that can identify them well ahead of time, then his work is overshadowed.
Far better for him professionally to deny than to admit he's well behind the curve.
Good one. He seems to be defensive of the dogmas of mainstream!
Noah: "So if there were no academic and Fed macroeconomists around to advise policymakers, who would policymakers listen to on economic matters?
My guess: Some very dangerous people."
But economists themselves are dangerous people and have done a lot of damage.
"The unknown potential for big breakthroughs in forecasting methods.... And since macroeconomists are very cheap, all in all, it seems we should keep them around."
Best part. He wants to keep his job by citing potential breakthroughs!
"But economists themselves are dangerous people and have done a lot of damage."
+1 on that too.
Ramanan, did you click on his link in the post, "a cavalcade of vast unending wackitude" Yep, Post Keynesians and Modern Monetary Theorists are there along with the other "fringe" types like Austrians and Marxists, all of whom are represented on the list of those who foresaw the crisis and warned about it while the mainstream economists ignored them. This what got me steamed.
One thing I find particularly funny with the brand of 'free marketer' economists is the contradiction between the nature of the economy and the markets as 'information process' machines and the tools and pretensions based on 'newtonian physics envy' to predict the future. All to justify the existence of certain policy making decissions or institutions to reinforce the functioning of the current financial system.
At least the different sort of 'Austrian' tradition and anarcho-capitalists are more humble in this, and less contradictory, even if they speak non-sense.
Also the 'technocratic' pretensions of mainstream macroeconomists are rather laughable. I mean, what's the actual corpus of expertise and knowledge of these guys. What are they supposed to manage technocraticaly? And is even worse when half of their assumptions are based or false claims about the realities of how a monetary economy operates.
The whole existence of their job's is based around not-understanding or as propagandists for TPTB. So yes, maybe these macroeconomists are a necessity, as marketing guys for the status quo.
Also the 'technocratic' pretensions of mainstream macroeconomists are rather laughable. I mean, what's the actual corpus of expertise and knowledge of these guys. What are they supposed to manage technocraticaly? And is even worse when half of their assumptions are based or false claims about the realities of how a monetary economy operates.
Noah Smith majored in physics in college. He knows the difference between ergodic and non-ergodic system. Non-ergodic system are not amenable to equilibrium modeling, as those supposedly crazy Post Keynesians (Paul Davidson) point out. See Lord Keynes, Uncertainty and Non-Ergodic Stochastic Systems
right Ignacio,
Running an economy isn't like predicting the weather.... if you have a view of authority... a big "IF" though apparently...
rsp,
Tom,
Yes I saw that. In particular "Secret weakness: the fear that Paul Krugman has said everything they've thought of, but better" which is comical because Krugman struggles with the simplest stuff.
On the rest, he is one of those who will invent ways to defend his and his colleagues' jobs - such by trying to be funny. He is a part of the problem.
Right, I don't see Krugman's name there among those who predicted the crisis. And Krugman himself said he was neoclassical. See Lars Syll, Paul Krugman is a neoclassical economist – and Noah Smith a Scientologist?
Oh missed both Noah's and Lars' posts! Thanks.
I don't follow Noah Smith so much but quickly read through his blog but what he wrote today and the missed post confirmed what I thought of him and I also had the reaction similar to your post...
"Noah Smith is a professor of finance at Stony Brook University, specializing in behavioral and experimental finance." from is blog intro at Huffington Post.
So if he is a finance professor he must understand financial accounting as well as national accounting. He disses MMT as just accounting identities. Has he approached Godley & Lavoie and the MMT and Circuitist lit. No indication he has. He dismisses PKE and MMT out of hand. He certainly knows about the relevant lit if he reads the comments at his blog because I have cited it on several occasions before I gave up on him as insular and incurious. He is apparently a true believer that cant see past his ideological blinders.
Tom,
I see the Academy as completely corrupt.
I would advise folks who are interested in studying these issues with a view towards working to effect justice to get out of the Academy of Economics... get into the "govt operations" or Systems Management Department with a specialty in government...
Paul (to me anyways): "For it is not ours to wrestle with blood and flesh .... but with the world-mights of this darkness,..." Eph 6:12
One of these 'world-mights' is lording it over the Academy of Economics right now as far as I can tell... completely corrupt and dark...
If anyone out there in the Intelligentsia is interested in these matters that effect we humans, suggest Judo this thing and get into another applicable Department.
rsp,
"So if he is a finance professor he must understand financial accounting as well as national accounting."
Has he ever had to use math to solve real-world problems? Is he aware of the laws of thermodynamics, closed systems or conservation of matter and energy?
Accounting is applied closed-system arithmetic. There can never be a gain in nominal dollars across any chain of transactions...the best possible outcome would be 100% efficiency but in the real world losses are inevitable.
I suspect Smith has a much better knowledge of math than most of us. Not very useful if you can't use the tools to do something useful.
I had a lot of math training throughout college but no math class (or Physics) ever presented anything like what I learned in Thermodynamics 101, and I'm not sure the principles are intuitively obvious until they are presented to us.
That was 40+ years ago...don't know if math/physics students are exposed to those ideas now or not. They should be.
"It is impossible for an effect to be greater than it's cause" - Aquinas 1274
The DSGE clan simply won't admit their models are inferior to others despite overwhelming evidence to the contrary. Mark Buchanan goes after Noah's ilk again on Bloomberg. The DSGE folks are certain their models are the most elegant, flexible thing out there. The only problem is that they can't seem to get the right solutions with any regularity.
Thanks, Ryan. Promoted to a post. I commented there, too.
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