Wednesday, June 30, 2010

Economist Notes Economic Advice Not for Amateurs

Kartik Athreya writes that the masses should only trust PhD economists for their economic advice. As mathematics is the language of economics, and economists use a specific set of mathematical tools such as real analysis, method of moment estimators, and dynamic programming, these essential tools are clearly not understood by your average commentator, justifying this belief. Why listen to someone's opinion on the TARP if they don't know how to apply Blackwell's contraction mapping theorem? Insanity!

I agree these tools are essential, but I would add that they are not sufficient. So, readers should only trust PhD economists who understand these tools, and also the context in which they are applied. Having a couple business cycles worth of experience actually presenting micro and macro forecasts to CEOs and other key decision-makers, or running a portfolio that is marked to market, as also essential. As economists are primarily experts in models, applied to cherry-picked datasets that present cute results that showcase some novel cleverness, they are ignorant of the their ignorance. Their models are like the electric car, always just around the corner to viability. With hindsight, predicting business cycles--anything really--is very simple. You need someone who has been doing it in real time, with real feedback, giving you advice.

I therefore feel obligated to suggest that Obama internet monitor Cass Sunstein appoint me--and Falkenblog readers--gatekeeper of all economic opinion. Arguments my Star Chamber find invalid will be degoogled via an innovative JavaScript that will be mandated on all websites. Any page containing the keyword "cost" must have they keyword "benefit" on the same page, and vice versa. Any mention of effects must have heteroskedasticity consistent standard errors, even if the said effect is qualitative (further, one must spell that with a "k", not a "c"). Presuming market oriented solutions assume perfect competition or perfect foresight, is no longer cromulent.

But that just targets the non-PhDs. As to mere PhD economists, mentions of multiplier effects, increasing returns to scale, or default choices on IRA withholdings are also uncromulent. They must also remind people that "chief economist" is a PR position with no influence within their own organization, and their mothers admit they are doctors but "not the kind that will do you any good". Macro economists must use the term TNSTAAFL at least once but never IMCO.

1 comment:

rballentine said...