NDD posted an article last week on the current state of economics. The article was in response to a post from Professor Delong regarding the current state of economic thought. I wanted to add my two cents to this discussion.
But first, I think an explanation of my economic education is in order, as I believe it explains a great deal about my perspective. I learned economics by accident. I had a professor in college who suggested that I read the New York Times and Wall Street Journal everyday to get my news. In doing so, I wound up reading the markets and economic section of the WSJ. While at first confusing, I continued to read until the whole picture started to make some sense. Then in my junior year in college I got a summer job cold-calling for a broker. The firm where I was working had a collection of books it used to help brokers study for the series 7 exam. I would up reading most of these books out of interest.
After college I wound up getting a job with a securities firm. I started in equities and moved to fixed income about a year later (now you know where my internet name comes from). At this job, I had clients who managed large amounts of money ($1 billion +). These guys were some of the sharpest people I have ever met -- they had probably forgotten more about the economy, markets and finance than I had ever learned. I spent a great deal of time talking with them about what was then happening in the economy (this was the mid to late 1990s). This was a great place for me to take what I had learned and apply it to the real world.
After going to law school in the 2001-2003, I found blogging in about 2004 and started to write about economics. The rest, as they say, is history (or at least a great deal of time spent writing about economics). In addition, in my current job, I consult on portfolio structures for small insurance companies.
All that being said, it should be clear that my primary goal in writing and explaining the economy has nothing to do with models or theoretical concepts; instead, it has everything to do with explaining where we are now, where we have been and where we are probably going. Another way to look at this is I (hopefully) provide actionable information. I am interested in figuring out what is profitable for myself and hopefully other people. The best way to do this is to know the current state of the economy.
How does this tie into what Professor Delong and NDD wrote about? Well, in my humble opinion, the vast majority of "economists" at colleges are great examples of really stupid smart people. First, most believe in this great myth: the rational person. That is, they believe that consumers all make rational choices regarding all sorts of things. This is bullshit, plain and simple. People are not rational. Here is but one example: I live in Texas. About every fourth car on the road is a pick-up truck or SUV. We are currently experiencing near $4 gallon gasoline, at a time of high unemployment -- meaning there is very little upward wage pressure. A rational person would look at this situation and trade in their pick-up en masse for far more fuel efficient vehicles. They would also be clamoring for more public transportation -- which, trust me, isn't going to happen in Houston anytime soon. I could go on -- and I'm sure you can think of a great example off the top of your head of the same situation.
As soon as I see an academic write an article about the ideal policy response, I turn off automatically. The reason is simple: they are arguing from a purely theoretical perspective that has absolutely no bearing on reality as we know it. Hence, it's a pure waste of time reading or engaging in any debate with these people. I should also add, one step removed from the academic economist is the political economist, or the "economists" who write for a "think tank" or a political party, candidate or cause. These people also have a clear agenda that completely pollutes their perspective to the point of making it worthless. In this category we have the entire political blogphere.
The people I do listen to are three types.
1.) Economists who provide an analysis based on data -- and the more the better. And I love disclaimers. Why? Because tomorrow the economy could change on a dime. If you want certainty, bet on death and taxes. But the economy is like a giant Calder mobile; there are myriad parts spinning around, continually changing their orientation, forcing you to continually reevaluate what you thought was real. I've had people complain to me -- or gloat about -- a change in my position regarding the economy. What these people don't realize is the picture is constantly evolving and changing. At most, anyone has got about 6 months of visibility, and that's only on a really good day.
2.) Economists who provide long-winded explanations of the situation with tons of nuance.
3.) People who are looking at markets in real time and making investments based on that data.
Everyone else -- in my opinion -- is garbage. And that includes the vast majority of academic economists, political economists, and the vast majority of internet economists.
10 Thursday PM Reads
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