Believe those who are seeking the truth. Doubt those who find it. Andre Gide


Friday, March 27, 2009

Goodbye, Homo Economicus

Here we have Anatole Kaletsky, giving us his version of the Buiter rant: Goodbye, Homo Economicus.

Who is Anatole Kaletsky? Evidently, he is an "economist." Well, more like a journalist-economist-consultant-forecaster. That is, he is a snake-oil salesman; which is to say, he is richer than you or I.

In this fine piece, Kaletsky argues that economists must take the blame for the current financial crisis. Well, not all economists, of course. Not economists like Kaletsky, for example. Not the "talking head" economists, or the economists who like to forecast things. The blame lies with academic economists...like me. Well, I am sorry. I am truly sorry for causing the crisis.

The fault lies with academics who plant crazy ideas into the minds of people (adults who cannot possibly be held responsible for what they learn). Crazy ideas like efficient markets, the glory of capitalism, blah, blah, blah. One can certainly see how these crazy ideas have manifested themselves as unbridled capitalism run amok (it is inconvenient here to observe that the financial sector is by far the most heavily regulated sector in any "well-developed" economy).

To flash his eruditeness, Kaletsky offers us the following quote from Keynes:
Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

I like this quote and agree with it. Kaletsky evidently believes that the economist is to blame for this; rather than the madmen who adopt their ideas. Evidently, Kaletsky must have skipped some classes at Cambridge. I see that Keynes (1923) also said:
The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.

This is something that Kaletsky evidently does not understand. He certainly shows none of the humility that academic economists demonstrate when it comes to understanding the world around them. For example, take a look at Kaletsky's bold predictions for the economy (made January 2008), Goodbye to all that: the worst is over for the global credit crunch.

His predictions are as follows:

[1] The global credit crisis is now almost over;
[2] There will be no U.S. recession;
[3] Stock markets around the world will rise in 2008;
[4] There will be a "decoupling" between the U.S. and Asia;
[5] The sterling will fall against every other major currency

Incredibly, every single one of his predictions failed to materialize. This takes an incredible amount of skill (generally, bullshit forecasts can expect to be correct 50% of the time). But I suppose that the fault here again lies with academic economists. Shame on all of you!

8 comments:

  1. LOL!

    OK, be careful lest one set of strawman arguments begats another set.

    So who both correctly forecast this crisis and managed to personally profit from it? I'd like to study the MO.

    As to expectations of the social role and responsibility of academic economists, should we expect anything but cautious self-serving behaviour from academics? Should we expect academic economists to do anything but carefully talk their own book?

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  2. Westslope:

    Glad you enjoyed it. And Your last questions reveal your cynicism (i.e., wisdom). Always question motives.

    Having said this, I find it curious that the set of academic economists typically skewered by the non-thinking include people like Ed Prescott and Robert Lucas. When was the last time you heard them make loud pronouncements and pointing fingers? As far as I can tell (I know the former much better than the latter), they are just geeky social scientists, honestly trying to make sense of the world. They could be making much more $$$ selling themselves as "experts" on economic policy to governments and think tanks around the world, but choose not too. This is in stark contrast to "economists" like Buiter and Kaletsky.

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  3. There is a guy, on a blog, who has an econ degree of some kind. He always captures for me what rankles about the field. In response to often reasonable questions he'll begin:

    "as any first-year economics student would know ..."

    And then he'll proceed with some theory, of some contributing factor, without any mechanism to establish that his theory is dominant in practice.

    It's the combination of arrogance and wrongness that those of us outside the field experience.

    Arrogance and (strong) EMH is one case in point.

    I guess that's sad for those true meek and geeky social scientists, but for those of us on the other end, it really feels like chickens coming home to roost.

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  4. i thought sterling did fall against every major currency.. still 1 for 5 isn't great

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  5. hey, the stock markets did rise too in 2008 (on some days)

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  6. Your defense of academic economics is an ad hominem attack on this guy.

    Efficient markets? Stability of capitalism?

    Academic economics forgot Keynes existed for twenty years and are still trying to force Friedman through the wicked forest of economic history.

    As long as you don't need any useful information about the real world, academic economics is fine. Employs a lot of bright people. Nice math. They should have gone into thermodynamics, though.

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