Barbie Does Economics!

From Montier:

“The sheer hubris of many in the economics profession never ceases to amaze me. Take for instance a recent paper by Kartik Athreya of the Federal Reserve Bank of Richmond entitled ‘Economics is Hard. Don’t let Bloggers Tell You Otherwise’. In a move that is eerily reminiscent of the controversial talking Barbie of the early 1990s who fatefully uttered ‘Math class is tough’, Athreya’s short paper essentially lays out a quite staggering claim — that economics should be left to those with a PhD in the subject!”

More:

“The idea that what we need is more ‘worker bees’ gaining their PhD’s from conducting ‘angels on a pin head’ like work based on minor alterations to previous research makes me want to cry. Where were the warnings from the orthodox economics establishment ahead of the global financial crisis? Oh, that’s right there weren’t any.”

Try and find the PhD academic work on trend following.

30 thoughts on “Barbie Does Economics!

  1. I agree with the first paragraph completely. In fact we should prevent any more PhD’s in economics from being educated. That way they will eventually all die and the rest of us won’t have to listen to their drivel.

  2. Michael,

    Re trend following PHD’s:

    1) If there was to be what theses would you want to see?

    2) Do you think it would ever get funding? If so who?

    RJC

  3. Michael

    Reading between the lines, I get the impression you’re not a great fan of economics!

    Whilst economics isn’t an exact science, and economists frequently disagree with each other, economics is a rigorous empirical discipline, not pseudo-scientific babble! 🙂

    There’s a reason why Wall St is full of economists…

    Jeff

  4. You said,

    >> Try and find the PhD academic work on trend following

    I said, there are PhD’s in TF too and gave a couple of examples. Has to mean nothing or can mean everything. Depends upon how the reader takes it.

  5. “Whilst economics isn’t an exact science, and economists frequently disagree with each other, economics is a rigorous empirical discipline, not pseudo-scientific babble!”

    Rigorous empirical discipline… ha, ha, ha!!! When’s the last time an economist went out and did “field work” in this “science”. Almost every single economist blindly accepts data fed to him/her by the government. Their only “job” is to provide Monday morning quarterback advice as to why what was supposed to happen didn’t happen.

    The only reason Wall Street is filled with economists is for the same purpose.

  6. Mises, Hayek, Rothbard all earned PhD’s or European equivalents – they didn’t build their careers on rationalizing their gov’ts fairy-tale campaign promises.
    Problem is that the standard of fact & logic in today’s universities is degraded; & the academic culture, of course, would probably expel such men, were they students today.
    Today’s credentialed economists now have ego issues admitting the stupidity of fiat currency, fractional reserve banking, accounting rules that conceal off-book accounts, unsecured debt with enforced legal tender, in a word – all the same basic fiddles that once gave monarchs seignorage privileges, clipping coins, basically.
    So, focusing on econometrics, exotic statistical models (using assumptions rather than data as premises), & outraged bluster will give them cover?

  7. Jim –

    “Almost every single economist blindly accepts data fed to him/her by the government.”

    Couple of points:

    A. Why reinvent the wheel, and needlessly replicate the government’s work?

    B. No economist worth their salt will blindly accept anything. I’m sure most economists are aware of the limitations of government-produced statistics.

    “Econmists’ only “job” is to provide Monday morning quarterback advice as to why what was supposed to happen didn’t happen. The only reason Wall Street is filled with economists is for the same purpose.”

    You seem to be implying that the function of Wall St economists is merely to make excuses for poor performances by their employers!

    Do you have any evidence to back up that extreme belief?

    Isn’t it more likely that economists are employed to provide expert analysis of forthcoming economic developments, so firms can make informed decisions?

    Jeff

  8. Jeff, you seem to be saying that economists possess an expertise in the accurate prediction of future prices, along with other pertinent factors.
    Where’s the evidence for this, especially recently?
    As to “blind acceptance,” it’s worse – knowing the selectivity & slants of the published figures, the profession uses those numbers uncritically, since it’s not only easier (why do real research?), it avoids challenging both the gov’t authorities who sponsor the “data,” & those private-sector firms, favored by the gov’t, who are big employers of these same economists.
    Didn’t Prof. Romer just resign as a Presidential advisor, in apparent embarrassment, having promised a U.S. unemployment level of 8% (a weak achievement, even had it happened)?
    Her prior writings (Harvard Univ. Econ. Dept.) typically opposed most of what she promised to do, once “graduating” directly into a favored gov’t position.
    Establishment status is seductive; also – much safer not challenging the source of one’s paycheck, especially when one’s opinions aren’t putting one’s own money at risk?

  9. Michael (Rubin)

    The fact that someone has dedicated several years of their life to studying economic theories and data probably shows that they know what they are talking about. Nobody is right all the time, but I’d rather have the considered opinion of an expert than not. 🙂

    And whilst some economists are doubtless lazy, I’d like to think that, generally speaking, you don’t get to become a top economist in academia, Wall St or government without having a disciplined and questioning mind.

    Jeff

  10. Jeff, seemingly every last one of them missed the 08 implosion and you want to give them props? I have watched many of your posts here and I have no doubt that your trusting attitude does not help you — you just don’t know it yet.

  11. Michael (Covel)

    I’m not as trusting as I think you think I am. 🙂 I’ve worked alongside enough backstabbers over the years to have a healthy scepticism towards people in general.

    That said, when I hear an economist being interviewed on TV, I don’t automatically think ‘Why is this b*****d lying to me?’.

    And whilst there are doubtless people who have risen to senior positions in hedge funds and university economics departments by virtue of kissing the right assess, I would say that generally you need a certain degree of intelligence and rigour…

    BTW, you’re assuming that the 2008 implosion was spottable, and wasn’t just a black swan.

    Jeff

  12. Micahel (Covel) –

    You remind me of Fox Mulder from the X Files – a charming guy, but deeply paranoid about people in authority! 🙂

    Jeff

  13. Hi Trader Ken

    Every day, people correctly predict lottery numbers – it doesn’t mean that they have a special ability to see into the future. Ditto people who forecast financial collapses.

    The fact that another one-eyed man – Gordon Brown – didn’t spot the brewing storm, and neither did a host of well-informed government figures on both sides of the Atlantic, indicates that it wasn’t as conspicuous as you suggest. 🙂

    BTW, you’re assuming that the sub-prime loan debacle was what triggered the current crisis. That might be the mainstream view, but it’s not the only view. See, for example, http://www.theoildrum.com/node/5638

    Jeff

  14. If I might reply to “Trader Jim” who said, “economics is a rigorous empirical discipline”.

    I was accepted into an Econ PhD program but I left after I saw what was really going on. For example, I saw a paper presented in which the error margin was stated as 47.22% (sic). I looked at the calculations for margin of error and saw that he had only a couple hundred data points, so I worked backward and found that to get down to a 3% error factor, he would need several thousand. The problem was that he was using national GDP numbers. Since there are only a couple hundred countries in the world (not thousands) he can never get enough data points to improve the error factor. Then throw in that he was taking all the GDP numbers at face value when in reality only the largest and most economically developed countries (about 30 of them) generate statistics comparable in accuracy to the US (yes, I said that).

    To make the situation worse, he apparently didn’t understand what margin of error meant. All his results were within 47% of each other so the order of the results was entirely explainable by measurement error and thus meaningless.

    Economics a a field where calculating the error factor to two deciml places passes for “economics is a rigorous empirical discipline”.

  15. Chuck –

    On a pedantic point, Trader Jim didn’t say that economics was a rigorous discipline. I did – Trader Jim was disagreeing with me! 🙂

    In response to your point about accuracy, whilst economics might not be as exact a science as physics, it does the best it can with the data that it has available. When you’re dealing with human behaviour rather than the behaviour of particles, there’s always going to be a margin of error. 🙂

    Jeff

  16. What’s lacking is some common sense. The politicians and economists didn’t see it coming because they weren’t 1) setting direction for the economy, 2) dealing with changes, 3) and managing.

    Since they are not prepared for various possibilities, they feel behind what’s happening. That’s what usually happens when you have too high expectations.

    “Reason’s last step is the recognition that there are an infinite number of things which are beyond it.” – Pascal

  17. In general I do agree with the basic point of the Kartik essay. Although, there is a great deal of input needed from the laity but still deference to the professional economist has to carry far more weight just as it does for a physician, scientist, engineer, philosopher etc.

    Where I differ from his views is that their models try to describe human behavior. They are not laws like Newton’s laws of motion or that of Einstein, (both of which are not valid in certain arenas) and hence more susceptible to failure etc.

    Having said that, I want a medical diagnosis made by a proper physician in that sub-field and not by a random blogger without any credentials in the field!

    Arun

  18. Who needs ’em? They’re irrelevant to trading profits if you’re a trend-follower. Richard Dennis said that you could lock him in an empty room with an order phone and a chart book full of six month bar charts and he would produce the same results as he always did. I guess until his systems’ effectiveness inevitably decayed. Then he’d need to get out and do some more research.

  19. 16 Jeff Waters Says:
    August 19th, 2010 at 3:16 am

    Micahel (Covel) –

    You remind me of Fox Mulder from the X Files – a charming guy, but deeply paranoid about people in authority! 🙂

    Jeff
    Remember Andy Grove of Intel? “Only the paranoid survive!”

  20. Jeff says: “Isn’t it more likely that economists are employed to provide expert analysis of forthcoming economic developments, so firms can make informed decisions?”

    What they do is called prediction and it doesn’t work… that’s why they spend most of their time explaining away their previous “expert analysis” and why it was wrong.

  21. “…In summary, this section has demonstrated significant forecastability from a simple moving average trading rule for two foreign exchange series. The results are unquestionably large statistically…”

    “Technical Trading: When It Works and When It Doesn’t” Journal of Derivatives, Spring 1994

    Professor William Silber, PhD
    Director – Glucksman Institute for Research in Securities Markets
    NYU Stern School of Business

  22. Appologies to Trader Jim.

    Jeff’s comment “it [economics] does the best it can with the data that it has available” is exactly my point. I have no objection to professional scholars and others discussing ideas, but many times they don’t have data available to turn the ideas into actionable predictions, but they make predictions anyway.

    In the 1980s, my employer (a big commercial bank) tried to make the econ analysis unit a profit center. They hired a publishing consultant to turn the plain reports into a glossy magazine and determine how to price the service. The consultant came back and reported that none of our customers was willing to pay for the reports. They enjoyed the sales force delivering the reports by hand over an expense account lunch, but didn’t actually do anything with the information. So the truth is: banks have economists because their customers expect it.

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