By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Originally published at New Economic Perspectives
The truly exceptional thing about ‘modern macroeconomics’ devotees is not that they are so consistently and horrifically wrong or that they persist in their errors – but their exceptional combination of arrogance and disdain for those who have dramatically better records and broader and more relevant expertise. Kartik Athreya, the Richmond Fed’s Research Director, led the modern macro parade on June 17, 2010 with his blog (which he later withdrew in embarrassment) when he announced the Athreya Axiom of Absolute Arrogance.
So far, I’ve claimed something a bit obnoxious-sounding: that writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy. Taken literally, I am almost certainly wrong. Some of them have great ideas, for sure. But this is irrelevant. The real issue is that there is extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading.
Modern macro devotees suffered far worse substantive embarrassment than Athreya’s personal embarrassment. After Athreya (briefly) published his Axiom, a flurry of the world’s top economists issued devastating critiques of modern macro’s foundational myths in their dynamic stochastic general equilibrium (DSGE) models. The takedowns enraged and humiliated modern macro devotees, and because they are incapable of staying embarrassed, they doubled-down on Athreya’s Axiom by announcing the Dilettante Doctrine.
People who don’t like dynamic stochastic general equilibrium (DSGE) models are dilettantes. By this we mean they aren’t serious about policy analysis.
Lawrence J. Christiano, Martin S. Eichenbaum, and Mathias Trabandt, authored “On DSGE Models on November 9, 2017. Christiano and Eichenbaum are freshwater modern macro devotees trained largely at the University of Minnesota, and now holding prominent positions at Northwestern. Trabandt is a German modern macro devotee.
A dilettante is a person who cultivates an area of interest, such as the arts, without real commitment or knowledge. The Dilettante Doctrine takes modern macro’s arrogance to a new pinnacle. Only their model is legitimate, and it is illegitimate to criticize their DSGE models, even though they repeatedly fail. Instead, we must all “like” their models. We cannot make any statements about macroeconomics unless we “like [DSGE] models.” The Dilettante Doctrine is a sure-fire means of winning academic disputes. You demand that your critics endorse your views, or you dismiss them as dilettantes unworthy of respect.
Readers may recall that the scientific method works in the opposite direction of the Dilettante Doctrine. Modern macro proposes a theory (DSGE) and tests its predictive ability. The DSGE models fail recurrently, on the most important macro events, and the failures are massive. The scientific method requires the theorist of the failed model to declare it falsified. Economists who “like” repeatedly falsified DSGE models are, as Paul Romer famously declared, engaged in “pseudoscience.”
Athreya then inadvertently compounded modern macro’s failures by putting in writing a bit too many of modern macro’s darker secrets in his 2013 book about macroeconomics. Athreya confirmed many of the most fundamental criticisms of modern macro devotees, revealed additional failures that were even more devastating, and illustrated perfectly the blindness of modern macro’s devotees to their dogmas and logic. Athreya did recognize clearly one dogma that made modern macro devotees unable to spot even the world’s largest bubble – but treated that failure as if it were a virtue. Modern macro devotees train macroeconomists to be unable to identify warn against, or take action to end even the most destructive bubbles. This is like training surgeons to believe that shock cannot occur and they should ignore shock in treating patients.
I will return to these errors in subsequent columns, but in this initial column, I introduce Athreya’s most embarrassing and devastating admission. Athreya goes on for over 100 pages on how wondrous his fellow modern macro devotees are. They are brilliant specialists who are the world’s top practitioners of ultra-rigorous logic and ultra-sophisticated mathematics skills that make it impossible for them to be anything other than transparent and scrupulously honest. In particular, Athreya tells the reader that the paramount problem in macro and microeconomics is recognizing, understanding, and countering deceit, the defining element at law of fraud. (Actually, he does that only in an exceptionally opaque manner.) On p.103, however, Athreya admits that modern macro devotees know that their vaunted DSGE models rest on a fatal premise that is so preposterous and embarrassing that they dare not state it. “A silent assumption of the ADM model” is that “the ADM God” perfectly prevents all crimes, predation, and deceit – at no cost. Note that this means that modern macro devotees (silently) designed their DSGE models to be incapable of recognizing, understanding, measuring, or countering deceit, which they admit is their paramount and fatal failure.
It is never good to be arrogant. It is always dangerous and limiting to be (proudly) ignorant of fields that are likely to have superior understanding of issues such as deceit, fraud, and predation. Athreya’s book displays his pride in both of these faults.
The authors of the Dilettante Doctrine inadvertently revealed another embarrassing modern macro failure of great importance. It is the combination of repeated, devastating failure and unfailing arrogance that defines (and dooms) modern macro as pseudoscientists. In fairness to the authors, they announced their Dilettante Doctrine in the context of an article admitting catastrophic errors in modern macro. They also unintentionally admit the non-scientific nature of their enterprise. Consider this passage:
For [IMF’s leader] to take DSGE model-based recommendations seriously, the economic intuition underlying those recommendations has to be made in compelling and intuitive ways.
Yes, they actually wrote that for anyone to take DSGE models “seriously” their “economic intuition” must “be made … intuitive.” Wow, who knew science could be so ‘intuitive?’ Not satisfied with announcing their new “intuitive method” as a substitute for the scientific method, the authors double-down on the concept that ‘intuition’ is the secret sauce of economics declaring that the super-secret is to keep that ‘intuition’ “simple.”
To be convincing, it is critical for a DSGE modeler to understand and convey the economic intuition behind the model’s implications in simple and intuitive terms.
Notice that the authors are not stating the conditions required to make the DSGE models ‘correct.’ They are only interested in what practices will make the models’ results “convincing” to the bosses.
The bosses decide “actual policymaking.” The Dilettante Doctrine authors declare policymaking to be even less scientific than relying on ‘simple’ ‘intuition’ to convey DSGE model results. It turns out that DSGE models are the ‘canvas’ on which modern macro devotees “see the combined effect of the different colors” of their “art.”
Inevitably, actual policymaking will always be to some extent an art. But even an artist needs a canvas to see the combined effect of the different colors. A DSGE model is that canvas.
These passages are not simply embarrassing, they are revealing. DSGE is a substantive farce that repeatedly fails because modern macro devotees shaped their models from the beginning to embrace laissez faire dogmas. The ‘simple’ ‘intuitions’ underlying DSGE models are the most destructive laissez faire dogmas. Narayana Kocherlakota’s sly use of the word “almost” reveals his agreement with this point.
[A]lmost coincidentally—in these [early DSGE] models, all government interventions (including all forms of stabilization policy) are undesirable.
The authors of the Dilettante Doctrine agree with Kocherlakota’s observation about the original DSGE models.
The associated policy implications are clear: there was no need for any form of government intervention. In fact, government policies aimed at stabilizing the business cycle are welfare-reducing.
Modern macro is proud that its ‘freshwater’ and ‘saltwater’ factions have achieved a grand fusion. The saltwater types agreed to use DSGE models and the freshwater types agreed that the freshwater types could add ‘frictions’ to the DSGE models that would allow the models to at least purport to address some of the actual macroeconomic problems. There is a misleading view that because the ‘saltwater’ types often call themselves “New Keynesians” they must have views sympathetic to Keynesian thought. The Dilettante Doctrine authors make the useful point that “New Keynesian” dogma is actually Milton Friedman’s core laissez faire dogmas.
Prototypical pre-crisis DSGE models built upon the chassis of the RBC model to allow for nominal frictions, both in labor and goods markets. These models are often referred to as New Keynesian (NK) DSGE models. But, it would be just as appropriate to refer to them as Friedmanite DSGE models. The reason is that they embody the fundamental world view articulated in Friedman’s seminal Presidential Address….
The Dilettante Doctrine authors admit that DSGE models failed at the most fundamental level – they could not even spot that the economy was becoming progressively more dangerous and harmful.
Pre-crisis DSGE models didn’t predict the increasing vulnerability of the US economy to a financial crisis.
The authors go badly wrong in multiple ways when they attempt to explain the DSGE models failures and their implications for economic theory and policy.
There is still an ongoing debate about the causes of the financial crisis. Our view, shared by Bernanke (2009) and many others, is that the financial crisis was precipitated by a rollover crisis in a very large and highly levered shadow-banking sector that relied on short-term debt to fund long-term assets.19
The trigger for the rollover crisis was developments in the housing sector. U.S. housing prices had risen rapidly in the 1990’s with the S&P/Case-Shiller U.S. National Home Price Index rising by a factor of roughly 2.5 between 1991 and 2006. The precise role played by expectations, the subprime market, declining lending standards in mortgage markets, and overly-loose monetary policy is not critical for our purposes. What is critical is that housing prices began to decline in mid-2006, causing a fall in the value of the assets of shadow banks that had heavily invested in mortgage-backed securities. The Fed’s willingness to provide a safety net for the shadow banking system was at best implicit, creating the conditions under which a roll-over crisis was possible. In fact a rollover crisis did occur and shadow banks had to sell their asset-backed securities at fire-sale prices, precipitating the Great Recession.
In sum, the pre-crisis mainstream DSGE models failed to forecast the financial crisis because they did not integrate the shadow banking system into their analysis.
I begin with the most fundamental failure – the failure to ask the right questions. Two prominent examples are why didn’t the DSGE models warn us decades ago that the economy was systematically misallocating assets and creating the largest bubble in world history and what should we do to change the perverse incentives harming the economy and economic stability? Kocherlakota, in the same article from which I quoted above, emphasized that modern macro failed to warn about the coming financial crisis and the Great Recession and failed to provide effective policies to respond to them.
The dilettante article only uses the word ‘bubble’ once – to describe the tech bubble. It never labels the vastly larger housing bubble a ‘bubble.’ The dilettante article’s authors claim it is not relevant for their purposes to know how the bubble arose, why it continued to inflate for over a decade, why it burst, or why it triggered the global financial crisis and the Great Recession. Only a dilettante could make or believe that claim.
Recall that Athreya emphasizes that deceit is the key factor that screws up economies – and that DSGE models “silently” assume “the ADM God” makes deceit impossible. I have explained in scores of columns why deceit, fraud, and predation were the central causes of the housing bubble hyper-inflating, the financial crisis, and the creation of the Great Recession. The dilettante authors refusal to call the housing bubble a bubble does not change the fact that they claim that the dramatic fall in housing values after 2005 was the paramount “trigger” of the financial crisis and the Great Recession.
The dilettante authors create a fiction about what “precipitat[ed] the Great Recession.
In fact a rollover crisis did occur and shadow banks had to sell their asset-backed securities at fire-sale prices, precipitating the Great Recession.
The dilettante authors then make their twin ‘mea culpa’ on behalf of modern macro.
Against this background, we turn to the first of the two criticisms of DSGE models mentioned above, namely their failure to signal the increasing vulnerability of the U.S. economy to a financial crisis. This criticism is correct. The failure reflected a broader failure of the economics community.
The failure was to allow a small shadow-banking system to metastasize into a massive, poorly-regulated wild west-like sector that was not protected by deposit insurance or lender-of-last-resort backstops.
We now turn to the second criticism of DSGE models, namely that they did not sufficiently emphasize financial frictions. One reason why modelers did not emphasize financial frictions in DSGE models is that until the recent crisis, post-war recessions in the U.S. and Western Europe did not seem closely tied to disturbances in financial markets. The Savings and Loans crisis in the US was a localized affair that did not grow into anything like the Great Recession. Similarly, the stock market meltdown in the late 1980’s and the bursting of the tech-bubble in 2001 only had minor effects on aggregate economic activity.
At the same time, the financial frictions that were included in DSGE models did not seem to have very big effects.
The dilettante authors have no idea how important their concessions are. Their premise is that it was government regulation, deposit insurance, and the central bank’s ‘lender of last resort’ function that prevented prior epidemics of accounting control fraud from causing anything worse than “minor effects on aggregate economic activity.” The obvious problem is that since its inception 30 years ago modern macro ideologues have claimed the opposite is true – that governmental action is unnecessary and harmful. They constructed their DSGE models to valorize their Friedmanite dogmas.
The less obvious problem is that freshwater modern macro has claimed that the lesson of the financial crisis is the opposite. Athreya and the Richmond Fed have preached for years that the federal safety net caused the housing problem, the financial crisis, and the Great Recession. The Richmond Fed claims that the key policy response to future financial crises is allowing the shadow sector to collapse in an orgy of “rollover cris[e]s.”
The broader problem is why the dilettante authors are so wedded to their failed models, which at their core assume out of existence the institutions and events they say are most critical to explaining the catastrophic failures of their models. Why, for example, start with a general equilibrium model based on absurdly utopian assumptions (stated and unstated) that invariably produces equilibrium when the things we most need to study involve the failure of markets to function? It is nonsensical to make contradictory assumptions in different parts of your model about human behavior. Modern macro models keep failing and their devotees’ response is to add (over time) dozens of fudges that posit that humans typically act in a manner that contradicts to the explicit and unstated assumptions of the DSGE model about human behavior. DSGE models increasingly resemble Borg constructs. The Borg also claim that there is no alternative to assimilation into their collective.
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Excellent points. Helps to explain how you get a supposedly serious site covering real estate falling for ridiculous tripe about the root cause of the housing crisis (aka Great Recession). Take a careful look at the bombshell “working paper” and the new “narrative” cited, and you can see the groupstink of the Fed written all over it…
https://betterdwelling.com/forget-subprime-canadian-real-estate-buyers-investors-crashed-the-us-market/
Reply Aaron Layman
The mouse stepped on the elephant’s toe.
Boom boom ain’t it great to be crazy.
(That’s a nonsense song my daughters sang at camp when they were children).
The linked article qualifies.
Great article.
Modern mainstream macro is like a police detective whose model of the world states that people are nice and the body heals itself, and that therefore we will all live happily ever after. When confronted by a murder victim lying in a pool of their own blood, and that fact’s apparent incompatibility with their model of the world, they respond, “My model is correct only, you see, it failed to account for sudden massive blood loss. How that loss of blood happened is beyond the scope of my investigation, the important thing is that I’ve now incorporated that knowledge in my new improved model, which proves that we will all live happily ever after — except in cases of a sudden, massive loss of blood.”
Kocherlakota has a better, more recent paper on DSGE models worth a read. Toy Models.
There has not been a big mea-culpa from neoliberal economists after the 2008 Financial Crisis. I don’t think there will be. Many are essentially the equal of religious fundamentalists.
However, we should also remember that the very wealthy have backed the neoliberal economists against the general public. Neolibe3ralism provides a pseudoscientific economic excuse for what amounts to turning society into a plutocracy, which is precisely what the rich want.
“…essentially the equal of religious fundamentalists.”
Yes – nailed it!
aka: The divine right of markets. /s
The GFC worked out very well for the neoliberal agenda. What you can’t predict, you don’t need to prevent or protect against. If the result happens to be a massive transfer of funds from states to speculators that eases the path to austerity and asset stripping, what’s to apologize for?
Seem to insult religious fundamentalists, who have strongly held beliefs even when subject to persecution.
One sees no economists being crucified, treated to a ducking stool, shunned, or even burnt at the stake; instead they seem to expect eating burnt steak, frequently, at other’s expense.
Took the words right outta my mouth. Except I’d go on and on about, if it’s not a science, and if its devotees closely resemble religious fundamentalists, what’s that telling us?
And I especially appreciate your last point: neolioberalism’s ascendancy isn’t due to “winning hearts and minds.” They’ve cheated. Unlike ordinary scientists, they have not just think tanks to thank for their rise, they have weapons-grade backup in case of loss of argument. TINA, after all.
In my foilier moments, I think it’s mostly just a cover story. I wonder if, among the monstrosities loosed on the world from Dr. Friedman’s Chicago School labs, was a deliberate attempt to use the cosmogenetic principles elaborated in Joseph Campbell’s decades of lectures at the State Department’s Foreign Service Institute to remake society in his own image, to engage in synthetic, artificial, “modern” myth-making.
Or in Prof. Black’s more judicious formulation, “They constructed their DSGE models to valorize their Friedmanite dogmas.” Is it foily to point out the documented history of the CIA in weaponizing social science research? Is it foily to wonder how much of the intellectual, rhetorical, academic defense of modern macro is actually some sort of similar “public-private partnership”?
Or do we make the “ADM god” assumption?
How conveeenient. It looks to me like, at the very best, naive, earnest efforts in a BS project have come full circle: ‘According to our latest analysis, up is now down, and down is now up, but America is already great, so stay the course. QED, can I get some tenure with that and a side of the Good Life?’
(One of the main reasons I read NC is for exactly this kind of analysis of economics. In writing this I looked up Philip Pilkington’s work here. His article, Economists – An Anthropological View is almost great: love the idea, much obliged for the Leijonhufvud reference, but he badly distorts the role of shamen, and I fear he doesn’t really get that the power of myth lies in cosmogenesis; it’s how we bring the world into being. Turns out, he knows and drinks with an anthropologist. Could someone please introduce Mr. Pilkington to a drinking comparative mythologist with all due haste? TIA ;-)
What is ADM, aside from the agribusiness?
ADM is the Arrow-Debreu-McKenzie (ADM) model, as revealed in the blurb for the Athreya book on Amazon.
Aha, I had an excuse to quote ECONNED and didn’t. Here we go:
So, in trying to reduce economics to a set of equations explaining everything they explain nothing?
Why did this delusion overwrite everything? I think I know where it came from mostly, but any cultural anthropologist, historian, or religious figure would see the delusion.
Yves, the more you explain, the more unhappy I am. I don’t like to know that the economics being used to justify our immiseration was created by wise fools.
I managed to escape much in the way of economic training. That was partly due to my father, an engineer, saying I could major in anything but economics and sociology: “They won’t teach you how to think and they won’t teach you how to write.”
So when I went to dig deeper into the evolution, it was even worse than I had imagined. My thesis in ECONNED was that bad economic theory was responsible for the crisis. But it is still astonishing to see how bad it is.
In the category of “you know it’s true but it’s not easy to prove,” mainstream economics is a reaction against Marx and later Communism. It is wedded to proving that market economies are virtuous. Chapter 2 in ECONNED gives a long-form explanation, but basically, mainstream economics (which is NOT Keynes, Keynesianism is not Keynes, his fundamental belief that economies are unstable was excised) is utterly backwards. Its tenets are designed so it can be modeled with “tractable” models. Models that include instability or even “wilder” types of randomness (non-Gaussian distributions) don’t allow you to make predictions. Economists’ ability to have a seat at the policy table depends on their being able to make predictions, or appear able to make predictions.
So the math used to do economics (as Steve Keen laments) isn’t the most sophisticated. Worse, the mainstream macro models assume that the economy is naturally at full employment, and what makes it deviate are shocks, but then it wants to return to its happy perfect equilibrium. I am not making this up. My description is very simplified but not incorrect.
I know you are not making stuff up. I am just trying to understand all this, but it is difficult to accept the realization that a cult is in charge.
A couple of years ago (maybe more), Noah Smith of Noahpinion wrote an essay describing his feelings as he transitioned from the study of Physics to Economics. He mentioned that he had to adjust to the idea that mathematics wasn’t being used to describe actual events, but rather was used as an explanatory tool, to tell stories rather than give a true picture of how things work. Of course, I am neither a Physicist nor an Economist, so I may have misunderstood him.
Any field of study from physics to theology is based at least partly on good faith assumptions, if only because nothing is completely understood, but modern economic theory is more a bad faith ideology system akin to a corrupted religious cult than a good faith attempt at explaination. Political economy was a combination of discription, explanation, exploration, theory, philosophy and even morality.
Modern economics is mostly emaciated propaganda.
Can I quote this in my sh%#$ty little blog?
Lack of higher math skills precludes citizen involvement in economics.
Blame it on the math card in PCs that makes doing it by hand and thus learning and understanding how numbers work.
Most economists lack higher math skills too, but that doesn’t seem to be obstacle for them. It’s spherical chickens in a vacuum, models that are supposedly related to real world but are simplified beyond recognition because most economists are ignorant of even rudimentary statistics.
You don’t need math to follow the money.
…and you don’t need math to discover that the holy Models rely on downright silly assumptions about Human Beings.
“rational actors with perfect information”.
lol.
Most of the economic actors I know do not even remotely resemble that.
…and whomever said that modern econ is akin to fundamentalist religion is right on.
I can’t read “Money” or watch CNBC without thinking about Pat Robertson or Billy Graham.
It’s just a different god they worship.
With this in mind, I think it’s hilarious that the current hyperventilation about “cryptocurrency” could possibly be the bubble that, in popping, brings the whole mess down.
“Masters of the Universe”, indeed.
Know Thy Farmer.
Personally I believe economic as practiced is an example of telling the boss (the King) what they want to hear.
Economist appear descended form a long line of Court Magicians, telling the futures from the entrails of an animal, consulting the spirits for guidance, or using a Chrystal ball.
Of more pointedly Bullshit, baffles brains.
Prof Black make the point that he DSGE models assume away fraud. They also assume people are “rational actors, driven only by logic,” that is: we are all Vulcans from Star Trek.
A simple view of women’s fashions (high heels) with regard to comfort or safety would demolish any theory of people as “rational actors.” Or men’s behavior over their “sports teams.”
To assume away human behavior and emotion, and thus chaos or catastrophe theory, would put economists at odds with their masters, and cut their income, by the nearly always fatal, or career limiting “telling truth to power.”
It’s interesting to speculate what would be the scope or size of common ground in a dialog between anthropologists and economists. Null set perhaps?
Don’t high heels allow a woman to attract a better provider for her mate?
“Rationality” depends on the objective
Or another interpretation is that rationality doesn’t win the day in an irrational world.
Hi all,
Just a quick note for those who were initially confused by Bill Black’s use of “modern macroeconomic theory” and thought “modern monetary theory”. (I know I did, and was initially really confused by his take, and had to re-read the first three paragraphs a few times to re-set my mental pointers). As far as I know (and I did a year of Ph.D economics at Stanford, so I pass Arthreya’s first test) I haven’t heard of “modern” applied to DSGE macro but that probably reflects my choice of reading material more than anything else. In short, “modern macro” is bad, “modern monetary” is good.
BTW, one of the best takes of macroeconomics I’ve encountered is Steve Keen’s work, which I gratefully acknowledge I first read here on NC. Keen’s critique of DSGE models is utterly spot-on and mathematically sophisticated. Part of the problem with economics is that it has been afflicted with ‘math envy’ since its earliest days, and the ADM results were proved with Banach Space methods, so they just *had* to be right. Google the phrase “spherical cow” for more on this mindset, not to mention one of the few really funny math jokes I know.
Cheers,
P
The last refuge of a twenty-first century scoundrel: professional economics. No real scientist would take the time to bother with the entire lot of them.
Hmm. They’re still at it. Years ago Krugman used to try this line, claiming that people who criticized his theories just didn’t understand the mathematics, and anyone who wanted to argue needed to go off and get a Ph.D. from a prestigious university before they could speak sensibly on the subject. He doesn’t do that kind of thing any more, probably because his writing is public and high profile, and enough real mathematicians noticed him saying it and shot enough holes in his logic that his position became untenable. It appears those who remain sheltered in the warm embrace of academia and protected from critical scrutiny continue to maintain the delusion.
I second PB’s recommendation of Steve Keen for anyone that wants to see a demolition of the myth that macroeconomic models are grounded in mathematics (be warned that he’s not the most readable writer, although he’s pretty good by academic standards, so be prepared for some work).
Perhaps those authors who came up with the term Dilettante Doctrine to deride all opposition to their ideas could be in turn, with some justification, be labeled as the astrologers of the scientific world.
Hey, don’t knock it. Isaac Newton made good money as an astrologer. Even while he was working as Master of the Mint to put food on the table. I don’t believe he made a lot of money from The Principia.
So far, I’ve claimed something a bit obnoxious-sounding: that writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy….Kartik Athreya
In John Kenneth Galbraith’s 1982 memoir “A Life In Our Times,” Galbraith tells the story of how he migrated from the classical economic theory popular during his early life of which Alfred Marshall was the leader to Keynesian economics. And surprisingly it was a wealthy American executive named Henry Dennison of Framingham, Massachusetts that changed Galbraith’s thinking. This was in 1936 when Dennison, an untrained economist, and some other businessmen hired Galbraith, then a classical economist of the Marshall school, to help write a book supporting the economic policies of FDR. To write this book Galbraith had to explain the cause or causes of the Great Depression. This is where Galbraith, the economist, and Dennison, the businessman unschooled in economic theory, would disagree. Galbraith wrote;
So Galbraith’s colleague seemed to be a crackpot economist. After all Dennison was not a professional economist, but a businessman. However, it turns out Dennison was right and the young Harvard economist was wrong.
Galbraith finally published his manuscript in 1938 under the title “Modern Competition and Business Policy.”
Once there was Say’s Law.
Now we have Say It Ain’t So’s Law, with a thumb on the scale, an offshore account, and a GMO chicken only in a few pots.
If the plutocrats support them, does that mean when the bubble pops, they will let the house burn to the ground…as Hoover was advised by Mellon. If the deluded f##ks go for that, things are really gonna get interesting.
Thanks for posting that very interesting story. I’ll have to think on this one. So, if I get it right, the savings stream translates as income that has been removed from current spending as well as the economy in general with only a small percent ever being returned as interest on that savings.
I’m trying to reconcile this with how the economy was in the past (China is a modern example) when savings of a population were use to provide the capital for investments in new production or technology. The flip side that I am seeing that can come from this is that small savers are now being heavily punished through low or even negative interest rates while ‘investors’ using cheap credit based on dubious collateral are rewarded handsomely.
Where’s Mark Blyth when you need him?
Great post.
It reminds me of an acquaintance who developed a successful quant fund. Despite many years of pre-launch testing, the initial version, while successful, was not fully optimized because it did not spot control fraud in the companies they were selecting, and did not provide a quick enough response to this once identified. They changed their algorithms accordingly.
Economics is a bogus discipline.
Economic history might be based upon facts, indicating true causes and how the aftermath progressed.
Ireland, in the grip of a banking power that wished to teach it a lesson, killed off economic history as a Leaving Certificate topic in favour of Economics. For Seconday schools! Which really does show that philosophy and rhetoric should be part of the secondary school curriculum inorder to avoid the traps set by one’s own greed, still less the institutionalisation of it.
By 2000AD, all Principal Officers in the civil service had bought shares in banks knowing that “the fix was in”. The total failure of the sector was also “in”, but took years to manifest. 30% pa growth was demanded BY THE REGULATOR!
Economic history deserves to be part of the core curriculum!
That twerp who wrote for the NYT, was beaten by Niall Ferguson as soundly as is possible.
Facts TRUMP theory.
I did Economics for the Leaving Cert in the 1990s and it did me no harm.
One must make assumptions to test hypotheses. If the assumptions are untenable, then testing hypotheses based on those assumptions are silly, not to mention irrelevant. That is why we have peer review. However, as Yves nicely points out, if the peers reviewing a silly model are all drinking the same koolaid, then it is up to outsiders to point out that the proverbial emperor is buck nekkid.
One doesn’t have to know any econ jargon to see thru this dog-spittle approach to cut throat Capitalism