With All Respect Due The Esteemed Drs. Banaian And Spry
By Mitch Berg
A line that hovers before me in blog and news-site comment sections like a red cape in front of a bull; “most economists agree”.
Forbes’ Louis Woodhill has at that oldie-but-goodie:
Let’s be blunt. Whatever economics is, it is not a science. Unlike physicists, who can predict an asteroid’s closest approach to earth within a few miles when it is still 100 million miles out in space, economists can’t accurately predict this quarter’s GDP. Indeed, they are still arguing among themselves about what “really” happened 83 years ago.
In light of the economics profession’s track record, it is hilarious to hear pundits and politicians say things like, “Most economists agree…” as if this mattered…It has been said that generals are always preparing to fight the last war. Similarly, at the time that our current “Pretty Good Depression” started, most of what central bankers knew (or thought that they knew) had to do with “fighting inflation,” which was the last great monetary “war.”
The post itself is entitled “America Doesn’t Need Monetary Policy, And It Doesn’t Need Economists”. It’s a long read, and worth every bit of it.
Although since some of my best friends are economists, I’ll stick with “America doesn’t need to pay undue attention to them on a policy level”.
August 21st, 2013 at 7:03 am
I havent read this yet, but what it comes down to is economists are loathe to admit we need a much, much, harder monetary policy, plus the whores in D.C won’t let it happen. This is source of ALL of our problems. So, even though a gold standard or private money and EVERYTHING THAT GOES WITH IT would be draconian, it would be MUCH better than what we have now.
I’m dead serious.
August 21st, 2013 at 7:16 am
Do you think that if “most” physicists predicted an asteroid would miss the earth, and then that asteroid wound up striking the planet, the physicists would report that it stuck the earth “unexpectedly”? I suppose it depends on the party of the President at the time.
Also, Merg – you’ve mentioned it in the post header, but are you factoring for the economists that ‘you’ respect?
August 21st, 2013 at 7:32 am
@Seflores I don’t know if this addresses what you are saying, but I will give it a shot.
The number of economists that think the propeller heads at the Fed should stop trying to GUESS an interest rate and CRAM IT INTO THE ECONOMY to “help” it is effectively ZERO. An economist that proposes this can’t make any money or get any publicity. Plus the whores in D.C. won’t let it happen because they couldn’t run on the Something-For-Nothing Platform anymore.
We are doomed.
August 21st, 2013 at 8:31 am
TFS wrote:
“We are doomed.”
By some estimates we are sitting on 600 billion barrels of oil.
That’s 60 trillion at $100/bbl.
If you think we won’t touch it because of global warming, imagine the change in attitude you’ll see when it is either drill, baby, drill, or grandma won’t get her SS check, and medicaid kicks her out of the home so she has to live with you.
August 21st, 2013 at 8:37 am
@Powhatan Mingo I pay for analysis from guys that have ben right on everything for over a decade. They say it either won’t matter or it won’t be executed fast enough.
The bond market is supposed to back up (government funding crisis) before Obama leaves office. That is their prediction.
August 21st, 2013 at 8:51 am
Some people put a lot of faith in economists and financiers who predicted the housing crisis.
I wonder how good of a metric this is? If Bush had back stopped Bear-Sterns and Lehman Bros., the panic might have been less severe, and no economist could have predicted what Bush would or would not do.
Besides, chance would indicate that at least some of these far-sighted fellows just got lucky. How can a person know that ‘his guy’ wasn’t one of them?
August 21st, 2013 at 8:58 am
@Powhatan Mingo They never know the timing. They just pretty much know WHAT WILL happen eventually. They manage financial risk and their lives accordingly. Not easy, but it’s what must be done.
Fed easy money always causes problems. Big problems. Few see it. http://www.amazon.com/Greenspans-Bubbles-Ignorance-Federal-Reserve/dp/0071591583
August 21st, 2013 at 11:22 am
For the record, I’m pretty sure King Banaian would prefer a harder monetary policy. Hard to enact right now, though. Really hard.
August 21st, 2013 at 12:27 pm
But everything happens eventually, TFE. I had a conversation once with a friend:
Friend: “Ya gotta buy a house! Tax-free investment money! And you’ll never lose money on it!
Me:”What are you talking about? People lose money in real estate all the time!”
Friend: Well, ya gotta sell it at the right time.
The easy part is predicting an economic recession or crash. The hard part is knowing when it will happen. The more accurately you can predict when it will happen, the more money you can make. People much smarter than you or I, who are motivated entirely by money and the status it brings, can’t predict this shit. the fact that they can’t makes a good argument for free will.
Greenspan warned of a market affected by ‘irrational exuberance’ back in the 90’s. The Dow was at 6,000 at the time.
Which brings us full circle to the topic of Mitch’s post.
August 21st, 2013 at 12:48 pm
@Powhatan Mingo After the ‘irrational exuberance’ comment GREENSPAN BLEW THE NASDAQ AND HOUSING BUBBLES. Pets.com / house flipping. Foolishness. Now we have bloated government and all government insurance and pensions are massively underfunded. Massively. No GDP to pay for it.
There are people with very good track records on this stuff. They mange their risks pretty well and make money. Since 1999.
Bill Fleckenstien, Marc Faber, Harris Kupperman, Jim Grant, Jim Rogers, Eric Janzen, Jim Puplava, Felix Zulaff, John Mauldin, David Tice, Chris Martinson, etc
Hard money people that do a ton of work on bad government and Fed policy and bad academic work.
August 21st, 2013 at 12:50 pm
Nassim Taleb.
August 21st, 2013 at 5:09 pm
Since I’m named…
250 years ago, economics was part of political philosophy. Philosophy is inherently inexact: Nobody would confuse it with science. Nothing in what we have done since then changes the nature of what it is we study. It cannot be exact, because people have free will and thus do not obey any mechanistic formulae you might try to write down.
But two things cause some confusion. First, while we cannot predict perfectly a single person’s reaction to a change in the price of beer from $5 to $6, we know that if we aggregate up some people will forgo beer for $6 they would buy at $5. That happens so often we call it a “law of demand”. That sounds science-y. It’s really not science though. And we’ve extended that analysis to places I find quite unrealistic, without reflecting to the public what that lack-of-realism is. If I talk in terms of probabilities and confidence intervals, nobody will listen to me, particularly the press. And we all want to be in the public eye. Perhaps we should curb our enthusiasm for that.
Second, economists try to follow the scientific method when possible, and are getting better at it. Numerous works of randomized controlled trials now pervade development economics for example, giving us much better feel for when foreign aid works and when it doesn’t.
In short, we need to be more humble and we need to be better at sticking to science. And I am encouraged that we are getting there. But it will take longer than I will live for us to get where we need to go.
August 21st, 2013 at 8:25 pm
I love how every scheme the Fed has for keeping inflation in check involves creating new money and literally giving it to financial firms.
What could go wrong?
August 21st, 2013 at 8:46 pm
I wish Dr. Banaian were still blogging.
Difficult in his position, I suppose.
August 21st, 2013 at 8:58 pm
Emery wrote:
“What could go wrong?”
Wait until Obama’s CFPB gets going. It was designed, like the Fed, to be resistant to political oversight. It is ripe for capture by the big financial houses or by agenda-driven leftists.
August 22nd, 2013 at 6:36 am
“It is ripe for capture by the big financial houses or by agenda-driven leftists.”
Again with the claims.
Yes we had better privatize the market before it starts making profits. If it crashes again we can always re-socialize it.
Looking at U.S. history makes me want a “do-over”.
August 22nd, 2013 at 6:41 am
A single-payer system that operates alongside true, free-market, unregulated, you-can-buy-it-yourself, private insurance is the only thing that will work. This will give people options as to which they want; and for those who have been for free-market private insurance can see if it’s what they expected. I will predict that, over time, more people will flock to single-payer and private insurance will have minimal impact and presence in America.
August 22nd, 2013 at 9:42 am
The Swiss / Purple system is the only way to go. http://www.thepurplehealthplan.org
August 22nd, 2013 at 11:36 am
Emery, I am confused by your last comment. A government that can confiscate wealth to operate an insurance policy does not stand on a level playing field with a free-market insurance scheme. It’s in fact anathema to that policy. Of course people will flock to single-payer as government continues to confiscate from those outside the insurance scheme to give to those inside. You’d be a fool not to do so. But eventually, as Thatcher observed, it fails because you run out of outsider money to confiscate.
August 22nd, 2013 at 12:16 pm
So, how do we make “probabilities and confidence intervals” more interesting and fun?
August 22nd, 2013 at 4:13 pm
Politician’s say the problem with health care in the US is that a large number of Americans don’t have health care insurance.
Smart people say the problem with health care in the US is that there is not enough money available to give people the health care that they they feel that they deserve.
At least the ‘Purple Plan’ people don’t call it ‘insurance’.
When I was kid people talked about the British system. Then that got a bad rep — too many people, not enough resources. Then people talked about the Canadian system. Then Canada began to have patient care issues related to resource scarcity (no mo’ money). A few years ago the French system was in vogue, a semi-private system with physicians as state employees. Then the cracks started to show in that system. French physicians did not want to bear the full weight of cost-savings measures, and threatened to strike.
Obamacare is arguably worse than any of these systems.
August 22nd, 2013 at 5:35 pm
@ kbanaian; Thank you for your position on the Vikings stadium.
The real health care reform will happen when the employer mandate fails (either it is not implemented, or the penalties are low enough to make it cheaper to pay them). When increasing numbers of people flood onto the new exchanges, the subsidies will prove to be unaffordable. Given that Congress is deeply unlikely to fund ever-increasing subsidies, healthcare through the exchanges will end up very expensive indeed.
At that point, several things could happen. The health care market could turn towards high deductible policies. It’s also possible to control health care spending by making the state the single payer and using that power to both ration health care and limit fees. It’s also possible to control health care spending by creating a system of subsidies of individually purchased health care. The Swiss all pay the same amount, the government subsidizes different people with different conditions differently, and private providers compete for their business by offering more and better services than the next guy. Both systems beat what we have coming under Obamacare, as they move healthcare out of the control of employers. Other radical reforms could be attempted. But the status quo is not sustainable, and it’s going to be very messy sorting this out.
August 22nd, 2013 at 6:19 pm
I am very angry about the elimination of high deductible plans. “You get to keep your insurance” is a LIE.
August 22nd, 2013 at 6:39 pm
Obama just made a in incredibly wasteful system more wasteful. Idiot.
August 22nd, 2013 at 7:08 pm
Emery, I feel that you are approaching this problem from too rational a standpoint.
The conservative healthcare solution of “more competition!” is unsatisfactory, but the Democrat solution is worse. They really don’t care about the overall level of healthcare people receive, they care about ‘equal access to healthcare’. I use quotes because there will never be such a thing. There wasn’t in the Soviet Union, and there won’t be ‘equal access to healthcare’ here. Ever. Truly wealthy individuals and politically favored groups will always receive better care than ordinary citizens.
What the D’s want to do is bind the economic fortunes of the middle class to the economic fortunes of the poor and working classes. They want John the software guy who makes $90k/yr to get the same healthcare as Julia the immigrant hotel maid. This has long been a goal of liberal elements in the US. They do not want a rational solution, they want a solution that satisfies their ideological goals.
August 22nd, 2013 at 9:16 pm
American business will dump health care even if it’s just a break even proposition for them. Providing health care is a tremendous distraction for business. It gets employers involved in aspects of the employees’ lives where they don’t belong and aren’t comfortable. Much as you don’t want your employer making life or death decisions about coverage for one of your family members, your employer really doesn’t want to be in that position either. I fully expect to see a trickle of businesses, starting with small ones, dropping their employees onto the exchanges, which will grow to an avalanche. Health care insurance from your employer will become rare.
Which makes the structure of the health care bill so poor. By charging a penalty per employee, the health care bill creates an incentive to minimize the number of employees, work them as many hours a week as you possibly can, burn them out, then fire them and hire someone new. In other words, just like the current system. If you feel the need to tax compensation, then make it a fixed percentage. Better yet, put in a national value added tax to pay for health care and tax consumption.
The Republicans are very unlikely to repeal the health reform law. But they could improve it by paring back the minimum plan to a high deductible, high co-pay plan with a maximum on the co-pay.
In general, businesses would be better off if they got out of the benefits business and paid only in cash. All forms of compensation should be taxed with no exemptions.
August 23rd, 2013 at 4:17 am
Great discussion.
What it comes down to is ONLY A VERY FEW SELECT healthcare issues should be socialized / “progressivized” IN AN INTELLIGENT WAY, and the rest of it should be free market.
Obama and D.C. are collectively too dumb and corrupt to figure this out, though.
August 23rd, 2013 at 6:20 am
Obamacare is destroying the economy. 15 minutes must listen http://coffeeandmarkets.com/2013/08/22/erick-erickson-on-the-delta-and-ups-reactions-to-obamacare/
August 23rd, 2013 at 6:52 am
You can’t just have the elderly buying their own individual health insurance without putting in place a fairly elaborate system of rules and regulations to share the costs and ensure affordable coverage. Otherwise, what may represent a subsidy of 80% of the cost of health care for an average elderly person might only be 20% of what an old person with diabetes would be charged, and 1% of what an elderly person recovering from chemotherapy might be charged (if they could get private insurance at all, which they won’t). Market-based solutions to health care need to deal with the problems that make health care a poor market. Many health care costs are all too predictable, so it always pays for insurers to try to discourage and/or charge exorbitantly those who are sick or likely to become so. Privately purchased health care only works if you regulate that all customers must be charged the same, and all buyers must be accepted. Either that or some sort of subsidy system where insurers who take on patients with specific long term maladies receive a bonus to compensate the predictable extra expenses. This is close to the Swiss system, which while private is highly regulated.
That being said, the transfer of wealth from young working Americans to old indigent Americans must have a limit, and it would be better if America’s elderly rather than the government decided which forms of expensive health care they would rather do without.
I also find the expansion of the health care industry vaguely unsettling. I keep thinking of hospitals like the pyramids of ancient Egypt – monolithic transfers of wealth to the dead. It is not exactly rational, but then again, what are the fiscal multipliers in the health care industry?
August 23rd, 2013 at 7:44 am
@Emery Look at the purple plan. Our D.C. Whore-Rulling Class benevolently rebates part of our taxes (a negotiated % of GDP, which is the only way we pay for this stuff.) in the form of vouchers to “progressivize” it and “Medicareize” it. Pre existing conditions get cordoned off and socialized to an large extent. Insurance companies become utilities. No more government insurance, but it’s funded by government.
Kevin Williamson is hardcore libertarian and he’s for it.
August 23rd, 2013 at 7:47 am
QUOTE: I also find the expansion of the health care industry vaguely unsettling. I keep thinking of hospitals like the pyramids of ancient Egypt – monolithic transfers of wealth to the dead. It is not exactly rational, but then again, what are the fiscal multipliers in the health care industry?
Healthcare is mostly dead money like the military which is why wasting money in the healthcare system is a double disaster. JMO.
August 23rd, 2013 at 9:47 am
“the transfer of wealth from young working Americans to old indigent Americans must have a limit”
*facepalm*
August 23rd, 2013 at 9:57 am
QUOTE: “the transfer of wealth from young working Americans to old indigent Americans must have a limit”
*facepalm*
We don’t accumulate human and financial capital, we use government to DESTROY IT. #SlaveState #StatismIsStupid #GovernmentCan’tAllocateCapital #TooMuchCentralGovermentDoingTooMuch
August 26th, 2013 at 11:46 am
King, thanks for your take on science evolution of economics.
August 26th, 2013 at 11:48 am
Emery, I feel that you are approaching this problem from too rational a standpoint.
No, Ter, EmeryTheUSAHater is approaching it from Soci@list Marxist Central Command economy standpoint. Where wealth is confiscated and redistributed and people are enslaved to do Goobernment’s bidding.