Killer Points In This Little Essay About Currency Operations

Commentary by Roger Erickson

Demand Leakages: The 800lb Economist in the Room

Especially the last paragraph.

Pity it will be neither widely read nor widely understood by Joe & Jane Sixpack, who want results, not explanations. Until currency operations are discussed as widely as any other mundane operations - and show up in Scientific American or National Geographic -  we'll likely continue to ignore, and put up with, the consequences.

Yes, most people will never even want to have to know how currency operations work, but that holds for basic operations in all other disciplines as well. The ongoing failure of economics and banking operations is an economic engineering issue within that particular engineering profession, and it represents a failure of epic proportions.

If physical engineers were letting real bridges collapse as often as fiscal/monetary engineers let Main Street economic bridges collapse ... they'd all lose their professional licenses within a week. In addition, engineering schools would lose their accreditation. Heads would have rolled long ago, and people would be in jail.

Which brings up a simple point. Why isn't every economist, banker and investment banker required to get a license to operate, just like physical engineers?

And why aren't more people like Larry Summers already debarred, banned from practicing on us, or in jail? Any credible answers? And, why is Harvard Economics still accredited, and it's faculty still being paid, not jailed, for malpractice?

The supposed field of economics reminds me of the general pitfalls of "Assigning models (preconceptions) a higher priority than observations" - Chuck Spinney. That's not what occurs in real sciences or real engineering fields. What's that say about economics? Not much, except that it's not an operational science. It seems to be more of an academic fantasy land, and shouldn't be allowed anywhere near any policy office anywhere whatsoever.

And yes, many people have been saying exactly that, for decades on end, even centuries. So why are so few listening to that simple message? Is there a criminal lobby protecting the economics discipline from reality? Or are getting exactly what we deserve for our sloppy approach to self-governance? Both, always. That's reality. Only two questions matter.

1) What are YOU going to do about it?

2) What are WE going to do about it?

Until we get serious about doing something, in local & then global steps, everything else is just data not yet applied to changing context.

Beatrice Cherrier — The rise of economics as engineering, Parts I and II

The rise of the economist as engineer is, economists and historians say, an essential characteristic of the development of economics in the postwar period. In 2006, Greg Mankiw wrote a much commented paper in which he argued that one brand of macroeconomics (neokeynesian) is akin to engineering, by which he meant “solve practical problem,” and “help policmakers devise better policies to cope with the BC [budget constraint].” Another brand is rather done by (new classical) scientists, he explained, and is about “propos(ing) and test(ing) elegant theories.” He traced the first tradition to Keynes, its theoretical reformulation by Hicks and Modigliani, to the large-scale applied macromodels of Klein, Eckstein and Ando-Modigliani, and to the neo-keynesians. The second stream of course reflects the Lucas-Sragent-Wallace-Kydland-Prescott family tree.

That's either BS or pretty bad engineering. While I am not an engineering, I know enough about engineering method to know that none of these MIT economists remotely resemble engineers other than as members of the MIT community. That's not enough. For one thing, engineers get that there is feedback.

But this is something that we should be looking at and debating. For example:

One element missing from dicussions of MIT-style policy making is how they handled values. Using sophisticated techniques doesn't shelter from the need to work with some ends/evaluation and decision criteria. And the nature, relevance and implementability of such criteria, whether Pareto optimality, surplus analysis, social welfare functions, social choice functions were hotly debated in the forties and fifties.Welfare economics was then looking for new foundations, if not disagregating, and Samuelson was a major player in these transformations. MIT policy-making style is therefore related to the applied tradition there, in particular the postwar development in development economics and public economics.

INET — History of Economics Playground
The rise of economics as engineering I : setting the scene


The rise of economics as engineering II: a case study

Beatrice Cherrier