Sunday, June 27, 2010

Things You Should Read

-"Economics is Hard - Don't Let Bloggers Tell You Otherwise."  I've never heard of Kartik Athreya, economist at the Federal Reserve Bank of Richmond, but I like his style in this piece.  Here's his abstract:  

"In this essay, I argue that neither non-economist bloggers, nor economists who portray economics —especially macroeconomic policy— as a simple enterprise with clear conclusions, are likely to contribute any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public."

Again, I think Athreya's piece is well written, and largely accurate, but I think he makes a huge mistake when he compares economics to oncology.  See, in case it's not clear, oncology is a hard science.  Economics is a soft science - as Athreya acknowledges, human behavior plays a huge part in it - and that's precisely why the oncology (and later, seismology) references are ambitious and misguiding.  Without getting into a 10,000 word essay on the subject, the real problem we moronic bloggers have with economists is twofold:  1) they prove REPEATEDLY that their models are ill equipped to handle reality, largely because 2) human behavior cannot be modeled like the other inputs can.

Anyway, go on and read Kartik Athreya's piece above - it will not make you dumber.

-On that note: Bloomberg:  "Geithner Says G-20 Needs To Focus on Domestic Demand, not Deficits."  My "blogger,"  non-economist summary of that article is, "Hey guys - the Ponzi scheme only works if we are all committed to it."

"One day next month every student at Loyola Law School Los Angeles will awake to a higher grade point average. 

But it’s not because they are all working harder. 

The school is retroactively inflating its grades, tacking on 0.333 to every grade recorded in the last few years. The goal is to make its students look more attractive in a competitive job market.

-NT Times: "IBM's Supercomputer to Challenge Jeopardy Champion."   A very interesting look at the difficulties computers have in solving Jeopardy-type questions, and how artificial intelligence is making good progress in the field.

-Suburban Snapshots: "Why Having a Toddler is like Being at a Frat Party"  funny. samplers:

"10. There are half-full, brightly-colored plastic cups on the floor in every room. Three are in the bathtub.

9. There's always that one girl, bawling her eyes out in a corner."

Wrapping up, back to the initial topic, Barry Ritholtz points out that economists themselves should frequently be ignored as well.  Here's Ritholtz, talking about former Fed Chairman Alan Greenspan.  I think the second paragraph is fantastic:

"Before we get into the details of his deficit commentary, I must highlight this sentence: “The financial crisis, triggered by the unexpected default of Lehman Brothers in September 2008, created a collapse in global demand that engendered a high degree of deflationary slack in our economy.”

No, Alan, the financial crisis was not triggered by Lehman’s collapse. You are getting the causation exactly backwards: The crisis is what triggered LEH’s collapse. Further, the fall of Lehman was hardly “unexpected.” Whether you want to look at stock price before the collapse, spreads on its debt, David Einhorn’s forensic accounting (he was short LEH) or our own quantitative analysis (we were short LEH), there were plenty of warnings about Lehman’s collapse. It was only unexpected by those whose ideological beliefs blinded them to reality. (Remind you of anyone?)"


Transor Z said...

@KD: Thanks for the link to the Athreya piece. I like that he used Fallacy of Composition.

He doesn't understand that macro policy blogs have become the new fantasy baseball precisely because no one respects economists. And Athreya is a good example that, some folks, like our friends at certain now-infamous banks and oil companies, seem even more unlikable if they open their mouths and try to connect with the unwashed. Dude's got to understand that it's just human nature that people and their fields of expertise become objects of contempt when they fuck up on a grand scale. To wit, crashing the economy and breaking the Gulf of Mexico.

He's also completely wrong about doctors, and not just about lay people respecting scientific medical expertise. Most people I know have encountered at least a few doctors in their lives who were both arrogant db's and spectacularly wrong. Have people ever been more skeptical about pharma and medicine -- as opposed to homeopathic/herbal remedies?

But I understand why you posted the link and I completely agree: real understanding requires rigor. Anything less is pseudo-intellectual bs. Pundits popping off like the best policy solutions to the sovereign date problem are SO OBVIOUS is ... pretty freaking crazy.

But dude's got to understand that your discipline basically sucks when it's as fragmented and vulnerable to ideological bias as economics is: Keynesians, Austrians, Friedmanites, whatever. Just like psychology sucks -- another fragmented discipline with all kinds of bias.

Speaking of which, if you've got 90 minutes to spare, I thought this lecture by Zimbardo (I think delivered at Harvard Law) is just riveting. "The Lucifer Effect." I was up till 2:30 am last night before tearing myself away.

Kid Dynamite said...

well put, Transor. obviously, i don't believe that you need to be a christened PhD to speak about a topic as subjective as economics, but i mostly liked the style he took in his piece.

although i disagree with him, I can appreciate where he's coming from, because i could have written the same piece about "Trading." you read all sorts of nonsense online from people who purport to know what they are talking about when it comes to market structure, but the vast majority do not, and only serve to confuse, miseducate, and scare the other people who understand even less.

when i went to Treasury in november, i said to the head guys, "look, i'm not going to purport to lecture you guys on economic theory," i'm not an idiot - i know that i'm not going to teach Geithner shit about economics, but that doesn't mean I (and others) don't have value to add.

i think it all comes back to the "Soft science" nature of economics. the human element. which is why MORAL HAZARD these days is so important to consider - it's the corkscrew that can make all the models blow up, in my opinion!

Kid Dynamite said...

josh brown's summary is even simpler:

"Economists Can’t Do Economics, Either."

Anonymous said...

Geithner has never and never will know anything about economic theory. He is an empty suit.

Athreya is right.

Anonymous said...

Doubt this will be seen (the things you should read list is > 2 days old), but I love this blog and this article was spot on with some of the stuff you've been saying: