TheAgitator.com
About the “Experts”
Thursday, February 12th, 2009Nate Silver writes on the stimulus:
I’m sorry, but somewhere between 99.9% and 99.999999% of us are severely underqualified to be making policy recommendations on this particular issue. And I’m certainly in the majority on this one. My anecdotal experience for the past several months has been that the more someone knows about the economy, the more they know (or at least are willing to admit to) what they don’t know. Anyone who is professing with certainty that this or that will work — nationalizing the banks, for instance — is an idiot.
He’s right. But then he adds:
What I’m asking you to do is to clear the playing field. This is neither the time nor the place for mass movements — this is the time for expert opinion. Once the experts (and I’m not one of them) have reached some kind of a consensus about what the best course of action is (and they haven’t yet), then figure out who is impeding that action for political or other disingenuous reasons and tackle them — do whatever you can to remove them from the playing field. But we’re not at that stage yet.
What exactly is “expert opinion,” and who gets to pick the experts? Tim Geithner? Paul Krugman? How about the 200+ economists, including three Nobel Prize winners, Cato rounded up who oppose the stimulus?
Silver is right to humbly acknowledge that he doesn’t have the answers. He’s wrong to assume anyone else does. It’s the height of arrogance to assume, as this administration and the one before it have, that you can manage a dynamic, infinitely complicated $13 trillion economy by plucking a trillion from some sectors, handing them over to others, because you’re smart enough to pull all the right levers. And it seems rather naive to assume that even if there were enormous-brained “experts” capable of pulling that off, that those experts would just happen to be the same people who also have the political acumen to ascend to the few political positions in the country powerful enough to make it happen. And it’s even more naive to assume that even if that could happen, the correct remedy to our economic woes could survive the legislative process—and all the comporomise, corruption, and special interest lobbying that comes with it—intact.
One other thing. Silver writes:
At the end of the day, a great deal of the debate between liberals and conservatives is about how to apportion wealth.
Sadly, he’s spot-on here. It’s too bad the debate has long ceased being about whether the government should apportion wealth.
“It’s the height of arrogance to assume, as this administration and the one before it have, that you can manage a dynamic, infinitely complicated $13 trillion economy by plucking a trillion from some sectors, handing them over to others, because you’re smart enough to pull all the right levers.”
Hey, it worked out well for the USSR….
No single individual or group of experts is “smart enough to pull all the right levers.”
Only all of us – the market itself – can allocate limited resources in the most effective manner.
Unfortunately, the economic road ahead appears to be either 1) pain and 2) more pain.
If the economy is “infinitely complicated” (and I agree that it is very close to that), then there are no experts. None.
None of us, including no group of experts, knows this stuff. This is why we have markets which allow the collective wisdom of *everybody* to figure it out. For markets to work, government has to step out of the way.
As #1 says above.
Once the experts (and I’m not one of them) have reached some kind of a consensus about what the best course of action is (and they haven’t yet), then figure out who is impeding that action for political or other disingenuous reasons and tackle them — do whatever you can to remove them from the playing field.
So we’re supposed to sit around and wait for an event that will never happen (i.e. the experts reaching a consensus)? I’m fine with that…
And on a side note, as a longtime reader of Baseball Prospectus, I’m curious to see how Nate Silver applies his knowledge of statistics to politics. On one hand, if done objectively it could prove quite illuminating. On the other hand, statistical analysis is rarely done objectively.
“None of us, including no group of experts, knows this stuff.”
Just as there are many disciplines in medicine, and specialists in them, so it is with economics. Paul Krugman, for example, is a popular guy these days – but our current problem is not where the bulk of his expertise lies.
Robert Barro, on the other hand, is someone I think more capable of offering good advice. Here’s some recommended reading:
http://online.wsj.com/article/SB123258618204604599.html
http://business.theatlantic.com/2009/02/an_interview_with_robert_barro.php
@#5: He applied his knowledge of statistics all this last election year to politics. He was one of the few who called the primary for Obama in February, predicted most of the individual primary states final tallies correctly to like, a point, some to within a tenth of a point, and got the EV’s almost exact. Basically, he was *the* person to go to if you wanted accurate predictions as to what was going to happen.
I’m more scared about this “consensus” thing he is yapping about.
It’s too bad the debate has long ceased being about whether the government should apportion wealth.
But there can be no government without a reapportionment of wealth. Public goods, such as police and fire departments, make everyone better off, and must be paid for somehow. The question is, on whom should the burden of providing public goods fall most heavily?
There seems to me to be an underlying paradox with the Krugman crowd that isn’t getting enough attention.
Krugman’s logic goes like this:
1) Low consumer confidence is now the underlying financial problem.
2) A stimulus plan will raise aggregate demand which will raise consumer confidence.
3) In order to get a stimulus plan, we must scare the shit out of everyone.
Basically my point is that even if Krugman is the greatest macroeconmist in the world (he’s not) and has a perfect plan, he’s still only halfway there because he doesn’t have the political knowledge to put that plan into action. I don’t think there’s anyone in the world that has the necessary economic and political skillsets so spend a trillion dollars wisely.
Even setting aside my libertarian bias, Obama has failed miserably on this stimulus thing. He should have had a simple plan (money for states, unemployment insurance, a few small “shovel ready” true infrastructure projects, and marginal permanent tax cuts) ready on day one. He could have used his 75% approval rating to shove that thing through Congress and given the critters no chance to get their grubby hands on it. Instead he looks like a doofus argueing about the stimulative effects of “weatherizing” while Nancy Freaking Pelosi is openly ignoring his requests to have a “clean” bill.
#9 Zach – This could work by voluntary taxation, such as a national lottery.
If that’s deemed impractical, a small national sales tax, or a small flat income tax, could also cover it. I’d favor sales tax as that doesn’t necessarily penalize anyone for making more money (even a flat income tax means people making more pay more; with a sales tax, it all comes down to what you purchase).
The main point is, if gov’t were restricted to what it should be doing instead of what it does do, the amount of wealth needed to run it would be nearly trivial.
Although the basic laws of economics as presented in introductory courses are hardly a 100% perfect predictor of everything that will happen, they are a lot more accurate than some people would acknowledge. If someone offers up a plan which the basic laws of economics would predict would have adverse side-effects, but the person fails to acknowledge those side-effects, that tells me, with 99% certainty, that one of the following applies:
-1- The person is a buffoon who doesn’t even understand basic economics and his opinions should be disregarded.
-2- The person is aware of the side-effects, but feels his benefit from the plan will outweigh them.
-3- The person is not only aware of the side-effects, but planning to exploit them.
If the proponent of a plan acknowledges that the laws of economics would predict certain side-effects, but explains how his plan would manage to avoid or minimize them, it may be difficult for a novice to determine whether such explanations actually hold water. On the other hand, if no such acknowledgment of the laws of economics is given, I may not be able to tell what the plan’s proponent is really up to, but I’ll know it isn’t good.
If any economist is both well regarded by his/her peers, has spent a good deal of time studying depression era economics, and saw this thing coming more than two years ago, that’s an expert opinion.
Anyone who didn’t see it coming shouldn’t be allowed to get a word in.
The historical consequences of government intervention in the economy are that the economy fails.
Learn this: If you can’t afford to pay cash, don’t buy it. Anyone who is in trouble due to credit issues deserves to fail. If the country fails, so be it. Some of us have ways to barter and will make it through in spite of the governmental screw ups.
Billy @ 6:
Word to the wise, compadre. You wouldn’t trust a goddamned thing that the Daily Worker had to say on economics; I recommend the same suspicion for the WSJ. It’s basically the house organ for anti-capitalist corporate kleptocracy pretending to be a free market. Ignore it.
Thank you, Billy. Those articles were excellent, and a good summary for people who don’t understand why the misnamed stimulus is unlikely to help the economy (or who are trying to explain it to others).
For those who didn’t click through, in the first link, Barro explains why the pro-pork side’s 1.5 multiplier claim for government spending (a bit of magic to rationalize the nonsense that government spending is more productive than free market spending) is probably much lower than that. The second article discusses some other factors related to growth and attempts to quantify them. The second article, which is an interview, also touches on some of the non-expert opinions floating around out there.
BTW, seeker6079, as often as I disagree with the WSJ‘s in-house editorials (and others), Barro is an independent economist and doesn’t work for the paper. I think his writing on this topic is noteworthy, regardless of where it appears.
“Word to the wise, compadre.”
You obviously did not read the article. Robert J. Barro is a very highly regarded Libertarian economist. The WSJ’s publishing an article written by him does nothing at all to change that…
He’s wrong. The truth is that 100% of us an unqualified to say how to fix this. Why do you think all of the masters of the universe are alternating between sweating and tripping over their words and trying to rob some last bit of honey for themselves?
It’s because they made the system, and they know that their financial system is unbelievably complex so that they can more effectively skim off of it. But the problem is, that so many leeches have added so many loops and further complexities that now none of them even know what body part they are attached to, let alone how the whole thing works.
No one knows how this thing works. It’s an irreducibly complex system. And you know what happens to those. . . .
Zach at #9 is right…the sole function of government is to apportion wealth. The opposition party wants the party in power to have less wealth to apportion. Big surprise, I know, but it shouldn’t be confused with “fiscal conservatism”.
Ever since the ratification of the Commerce Clause, America has never had an unfettered free market. The idea that an unregulated free market would be able to work its way out of this mess is an article of faith. Comment #6 is an excellent example of this faith in action–he dismissed Krugman because, while he is an eminent macroeconomist, his speciality is not recession/depression recovery. However, he approvingly cites Barro, an eminent macroeconomist whose specialty is also not recession/depression recovery. However, Barro is a Libertarian, so we should listen to him, because he says things that we are predisposed to agree with.
#13 as the right of it; there were people who saw this coming a mile away. Many of them have excellent credentials regarding industrialized recessions and banking crises. These are the people we should be listening to, regardless of their ideological leanings, because they probably know what they’re talking about a lot more than us. And if they form a consensus, that is what we should listen to. But all of the people who were predicting sunshine and lollipops forever all on the backs of housing prices that never fall get to sit this one out.
All this would prove is that if you took every economist on the planet and laid them end-to-end, they’d all point in different directions.
Republicans give us a 100% shit filled sandwich and say “Eat up you poor
suckers.”
Democrats give us a 50% shit filled sandwich and say “Well, at least
the sandwich I’m giving you isn’t entirely shit.”
Libetarians tell us that
sandwiches shouldn’t contain any shit.
Sadly, though it appears that there is no way in hell they’ll ever be put in charge of making the sandwiches.
First, learn some Tao if you are dealing with what you think is complicated.
Second, I was trying to fix my ’77 Celica’s clutch with a ’98 Saab 900 manual. I, too, finally decided that it was too complex for anyone to understand and there are no masters. Hobo Larry and Pantsless Joe, both of whom I respect, agreed (although Larry had just barfed after huffing paint and I had slightly less respect for him).
This is a pretty good analogy of what I just read here.
#18, Krugman’s specialty is international trade and economic geography. Barro’s specialty is macroeconomic growth. It doesn’t mean much to me, but from resumes alone, Barro’s opinion is much more “expert” than Krugman’s.
As far as Krugman goes, if he didn’t flack for Democrats in the Grey Lady, fiscal libertarians would just consider him another extremely smart, competetent, and wrong Keynesian economist. He wasn’t dragged kicking and screaming into politics, so why do liberals bitch so much when he’s treated like any other hack pundit?
As to predictions, all this “there were people who saw this coming a mile away” is bullshit. Everyone knew we were in a housing bubble. Everyone knew a bank run type situation could result, particularly since all the banks (private and gse) were underleveraged against a nationwide real estate drop. All anyone could do is guestimate the likelihood of that happening, and we don’t now know, and probably never will, what the actual likelihood of it happening was. If it was 1%, “the people who saw this coming” were actually quite wrong. If it was 99%, everyone else was quite wrong.
Far be it for me to contradict the “established wisdom” (the Party doctrine) of this web site, but there is a clear answer to figuring out which experts are worth listening to vs. what experts are not worth listening to: Look at their past history. If they have been right in the past, listen to them. Not uncritically, but listen to them, examine whether there is a factual basis for what they are saying or whether they are merely reciting Party doctrine handed down to them by their Party commissars. You may or may not find that they have a point. If they have been largely wrong in the past, ignore them like a steaming pile of dog dung. Thus I listen to people like Paul Krugman and Brad DeLong who were right about the housing bubble and the effects of its collapse. I don’t listen to people who said tax cuts would keep the economy going (1.2 million jobs lost over the past two months says they were far too wrong to listen to ). And anybody who said “the price of houses always rises” automatically is dead to me — I will never listen to them again regardless because they proved they just aren’t serious.
As for nonsense about how adjusting the money supply via monetary and fiscal policy is the same thing the Soviets did, even Milton Friedman wasn’t that silly. A stable currency is one of the requirements of capitalism, and modern capitalism requires fractional reserve banking, which inherently creates and destroys money as the economy expands and contracts. Even Thomas Jefferson recognized that a stable currency is necessary, though he was ignorant of economics and thought a strict gold standard would prevent the creation and destruction of money by the operation of the banking system (it doesn’t — any system of fractional reserve lending inherently creates and destroys money whether you have a gold standard or not). Even Milton Friedman admitted that there were times that fiscal policy was needed in order to implement his favored monetarism, specifically, when we hit the zero bounds. At the zero bounds, simply printing money ceases to work because freshly printed money turns into mattress money and disappears out of the economy, no more than pretty pieces of toilet paper. None of this is controversial. None of the real experts (as vs. the pseudo-experts who were wrong about everything) disagree with any of this. What they do disagree with are specifics of the best way to handle fiscal policy to stabilize the money supply. Even there the disagreements are more about subtle things like long-term multipliers and best method to disinflate the money supply once money stops being mattress money and starts increasing the money supply via the operation of fractional reserve lending again, not about the need to do any of this stuff to insure a stable medium of exchange.
Short of outlawing fractional reserve banking and its inherent inflationary and deflationary effects upon the money supply, we’re stuck with government, in other words. Otherwise capitalism simply doesn’t work, because if the token of exchange can be rendered worthless via runaway inflation or rendered so valuable that it can’t be exchanged by deflation, then we end up with the token of exchange being useless — and reduced to barter, which is a lousy way of handling things.
Alex, I’m sorry to tell you that Schodinger’s Cat is 100% dead. He’s not got a 1% chance of being dead. Nor does he have a 99% chance of being dead. He’s run up the curtain and joined the bleeding choir invisible. Those experts who told us that that outcome was nearly certain seem now much more valuable than those who told us it was not at all likely. This is perhaps unfair. Maybe the latter group was just very very unlucky. Or maybe they were just bad economists. Or maybe they, for some unknown reason, chose to deceive us on the poor cat’s chances. I suppose we’ll just have to guestimate about all that.
“Silver is right to humbly acknowledge that he doesn’t have the answers. He’s wrong to assume anyone else does.”
Read Karl Denninger’s Market Ticker before you jump to any conclusions. He’s got the best plan I’ve seen yet. Too bad it will never be implemented in a million years.
“Those experts who told us that that outcome was nearly certain . . .”
Who is that?
What you’re missing, Badtux, is that nobody predicted THIS, including DeLong and Krugman. I remember a few of the weirdos on Fox News saying there was no housing bubble at all. I would agree that their advice can be summarily dismissed. There were also a few people who have done nothing in business or academic economics claiming the sky was falling, but 1) there’s always those people 2) if they were really that prescient they would have done something notable in business or academic economics.
“If they have been right in the past, listen to them.” — None of the economists involved in this debate, notably Krugman and Barro, have an undeserved reputation. They have the status they do because of the value of their work, not how loudly they scream. Also, why is Summers absent on this? I have my theories.
” I don’t listen to people who said tax cuts would keep the economy going” — There’s long been near consensus among economists on the futility of tax rebates. OTOH, there’s near consensus that the original Bush tax cuts had a substantial stimulative effect. Whether it was, lb for lb, better than other options is up for debate.
“And anybody who said “the price of houses always rises” automatically is dead to me” — Nobody said that exactly. What was said was that there has never been a net nationwide depression in the housing market. I tend to agree with you though. Because the housing market had never experienced such a sustained drastic increase before, it would reason that the future would also be unprecedented.
“As for nonsense about how adjusting the money supply via monetary and fiscal policy is the same thing the Soviets did, even Milton Friedman wasn’t that silly.” — It isn’t worth argueing with people who say that.
Read Karl Denninger’s Market Ticker before you jump to any conclusions. He’s got the best plan I’ve seen yet. Too bad it will never be implemented in a million years.
My plan would be summed up in two words: “acknowledge reality”. Much of the difficulty in today’s economy stems from the fact that there’s no way to really know how much various financial instruments are worth–$0.50 on the dollar, or $0.05 on the dollar, or $0.0000005/dollar. A company that sells for $0.25/unit an asset it bought for $0.75/unit has to report a $0.50/unit loss. By contrast, if the real value of the asset drops to $0.15/unit but the company can “pretend” it’s worth $0.70/unit, then the company only has to report a $0.05/unit loss.
Many companies, if they had to report their real losses, would immediately be recognized as insolvent. Such is life. Companies that avoid reporting such losses are also insolvent–they’re just not recognized as such. While it’s understandable that companies may seek to muddle along without being officially insolvent, that may not really be the best thing for the employees or customers. A company whose solvency is in doubt is going to have a hard time getting any credit or investment to continue operations. By contrast, a company whose insolvency is revealed may be bought by an investor who could be assured that his own money wouldn’t get swallowed up by earlier creditors (the investor may seek to pay off some creditors, such as suppliers, so as to ensure good relations with them).
Because the housing market had never experienced such a sustained drastic increase before, it would reason that the future would also be unprecedented.
The peddling of totally insane mortgages should have set off a lot more alarm bells than it did. When a person who makes $30,000/year buys a “$300,000″ house, something is very wrong. At the time I heard ads for the various insane mortgages, I couldn’t figure out why people were pushing them. Now I know: the mortgages were being pushed to maintain the illusion of high housing values.
#31 It annoys me how the Cato/Reason crowd keep trying to use that article about Bush increasing regulation as a trump card. He did, that’s true. But Cox &co were woefully inadequate at enforcing meaningful regulations. It seems to me that if they can’t enforce the very useful regulations, there’s no reason to point out how many were technically on the books.
I’m not sure I agree that it didn’t set off alarm bells though. I heard plenty of professionals complaining about young mortgage brokers and loan officers peddling bullshit. Annecdotally, plenty of my friends and family and randoms at bars said, “Something is fishy. How the hell are these people affording these houses.” Ultimately, I think the problem is that Congress doesn’t respond to problems that involve constituents getting more house than they should.
I would like to see another Manhattan Project except with economists. Gather the best and the brightest together somewhere in the desert and don’t let them come out until they have an answer. Balko may ask who gets to pick the best and the brightest? Let the economists pick. They must have peer reviewed journals, no? This economy is a tough nut, but I do not think the problem is insurmountable. We shall see. Also, if everything does go to hell, I still have my little bit of land and chickens, just have to work on setting up a still. Maybe I will try one of those home-made beer kits first, then move up to constructing a still.
A big part of the problem here is that while we can see whether or not a particular economist’s claims have predictive value, applying any particular theory of macroeconomics to a particular problem yields non-falsifiable results. There is a vast difference between being able to predict something and being able to affect outcomes (see: weather, sports betting for examples). And we simply don’t have two economies to which we can assign the roles of control and experimental.
In other words, no matter what has happened in the past, everyone can (and does!) use it to claim victory for their pet theories: “Government intervention got us out of the depression!” “Government interference prolonged the depression!” “World War II got us out of the depression!” “The Federal Reserve caused the Great Depression!”
Now everyone is entitled to their opininons, and we can all sit and debate whose opinions are more valid. The big problem as I see it is when someone’s unfounded opinion–no matter where they got a PhD, no matter what newspaper they write for–is used to justify taking and spending huge piles of other peoples’ money, so much so that we’re even spending the money that will someday belong to people not yet born.
Let me get this straight.
$10 trillion in debt (and associated service costs)
printing money like no time in history
military spending 20x what any other nation spends
regulators that don’t regulate
no production–only consumption
And a lot of you are claiming that no one–no one–knew or could have known economic meltdown was coming. You make this claim in spite of dated proof on dozens (if not hundreds) of blogs, YouTube videos, and actual printed books warning of a collapse.
Unf***ing real! UCMTSU!
Since the above is true, I have to wonder if you’d recognize the truth if it were explained to you right now.
People did predict this, but nobody listened to them. Try checking out Peter Schiff, for one.
Yep, Peter Schiff is one.
Robuini and Stiglitz are two more.
Krugman, I think has been predicting recession since 2001, which, I suppose, since it didn’t happen in 2002, 2003, 2004, 2005, or 2006
makes him the boy who cried wolf. (That’s not to say he didn’t actually have good fairly reasons to expect a recession in the not too distant future. I dare say the seeds were already coming to fruit then.)
Ask the highest regarded economists which of them saw it coming. If they can put aside their egos for a minute or two, I expect they could name someone besides themselves..
And Shedlock and Denninger. And Bill Bonner and crew at the Daily Reckoning. And Calculated Risk.
In general, Austrian economics theory predicts exactly the outcome we are experiencing right now given the starting conditions and bad decisionmaking.
OT — there was an Ed Kranepool who played first base for the Mets in the early 70s. I remember because my dad used to yell at the TV when he played. My dad didn’t think much of him for some reason.
Are you that Ed Kranepool?
I think some of you guys aren’t properly seperating the recession that was inevitable from the credit crunch that was only a possibility. So the credit crunch resulted from what was basically a classic bank run type situation. It’s a unique and rare occurence in economics.
I’m sure most of you are familiar with the classic non-cooperative game, the prisoner’s dilemma. For those who aren’t, what you need to know is that both prisonners best option is to act cooperatively and not talk. The second best option is to talk first. The worst option is to not talk when your buddy does. So when there’s only two prisonners, it’s easy for them to not talk because they only have one person to trust. As the number of prisoners increases, it becomes increasingly beneficial to talk since 1) it’s more likely that someone will talk anyways and 2) you should be the first if that’s the case.
This is exactly what happened last year when Bear Sterns aquired JP Morgan. Nobody wanted to be last, so everyone raced to withdraw. In a recession, nobody has quite figured out how to stop this, and until someone does, it will always be a possibility.
Several people have mocked the idea that what happened was a statistical possibility instead of sure bet. Instead of further arguing the point, I’m going to take the low road.
Did anyone of you make money by taking the advice of your favorite “expert” and short the relevant commodities and stocks? If you didn’t, may I suggest a hypothesis? You’re full of shit.
Alex,
I’m sorry to say that I didn’t find your prisoner dilemma analogy persuading. Perhaps, that’s because as you put it, there were a lot of players in the game, which made it extremely likely that one or more would crack. In short, your analogy, if I had heard it beforehand, it would have lead me to conclude that the credit crunch probability was nearly 100%.
To be sure, before it happened, it was merely a statistical possibility. After it happened, however, the probability function had collapsed and it was a statistical certainty. Believe it or not, when I’ve attempted to evaluate experts in fields I know little about, I’ve sometimes tried to see how well their past predictions matched up with what actually happened. Am I naive to give any credit to someone who said in advance that something was going to happen, and then it did happen but they were not entirely accurate in some of the details of how it played out? I hope not, because I’ve done it again and again.
Before the Iraq adventure began, a fair number of experts said it was likely to be go very badly, and if you want to claim that none of them predicted exactly how it went down, you’d be right, there too. Do you want to lump all of those experts into the same pile as the experts who told us that was going to be grand, just because not *one* of them predicted it perfectly?
Undoubtedly, there were very few that predicted the credit crunch before 2007. (Roubini and I don’t know who else.) It’s seems that you think anyone who did predict it was merely lucky, that their personal certainty(nearly universally ignored) was no more accurate than the predictions of an astrologer. Have you taken a careful look at Roubini’s work? Or do you dismiss him because you know of some previous predictions that he made that turned out to be entirely wrong? I have heard that Roubini was not entirely alone in his early prediction. Have you looked at his fellows and found reason to dismiss them all? Do you simply think that all economists have a rather low signal to noise ratio?
What about the economists who recognized the crunch almost immediately? Can we at least weigh their opinions more heavily than those who did not?
And yes, because I didn’t short any stocks, I’m surely full of shit. Except that, I didn’t claim to be an expert. Nor I did I claim to know before it all happened which experts were better. I claimed that some economists appear to have made measurably better predictions than others, a claim that was made *after* the event. If we get a consensus, I’m thinking I’d prefer to get one from the group that appears to have been more right than the other. Apparently, you disagree. Perhaps you think we’d do better to use ideology or some other point of distinction to pick which economists to get a consensus from.
In any event, you are certainly not the only one to tell me I’m full of shit though. My wife does it all of the time. As do my friends. I love them all for it(helps keep me humble.) So a consensus has been reached on that one issue. A promising beginning, I’m sure.