Here is a great blog post, entitled "Barbie Does Economics", about the recent paper by Kartik Athreya “Economics is Hard. Don’t let Bloggers Tell You Otherwise ”.

Ralph Vince comments:

Thanks for sharing this– what a fantastic blog, resonating with thoughts about the very kinds of things which have been sticking in my craw and gaping maw all weekend long.

I must admit too, any study into the Quantitative Finance world for me, has been sheer disappointment. I spent months studying many elements of this, stochastic calculus etc. All of it is fascinating to me from an academic standpoint– but, from a practical one, it just doesn't cut it. I've been around this a long time– long enough to know what works and what doesn't. Most importantly, from the time I could utter my first words, I's been steeped in the world of gambling, gamblers, traders and risk takers. I know the characters and their motives. One of the most distinguishing– and damning, for them, aspects…they don't.

Montier goes on…."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.

Indeed many of those who warned of the problems ahead did so because they weren’t constrained by the kind of training that an economics PhD suffers. "

Marlowe Cassetti writes:

I recently read Montier's book The Little Book of Behavioural Investing and I found it very helpful in understanding the shortcomings of our mental processes and our actions as applied to the investing/trading. His book validates Pogo's declaration … "We have met the enemy and he is us"

Stefan Jovanovich writes:

The largest single bubble in the world right now is the education game– not because the world does not need more and more of it but because the mechanisms for providing knowledge have become a Ponzi scheme in which too many students in higher education are only learning how to become teachers. There simply are not, and never will be, enough teaching jobs to go round. It is quite literally a pyramid party.

Ralph Vince responds:

Stefan, you REALLY have my gears turning today as they haven't turned like this in a while. I agree on the bubble of the "education" game.

There are two ways you can learn something in life. Either you hear it, or, you live it. Hopefully, when you "live it," when you have direct experience, you learn from it — but not always. In fact, maybe not even the majority of the time.

The Old Frenchman used to say to me, "The only way people learn anything is by pain."

That may be true, and if not, it's likely pretty close. I suppose the definition of a "windfall" is to learn something by hearing it, being able to accept it, and not have to experience the pain firsthand as a means of learning something. I don;t know if it "sticks" well enough though if we merely hear it, and don't walk away with a bit of sting from it.





Speak your mind

4 Comments so far

  1. Gary Rogan on July 11, 2010 11:36 pm

    Kartik and the other worker bees like him have not realized until recently that there are other directions in economics besides neo-Keynesianism. I read a polite response from Kartik recently to a letter informing him of such wonderful avenues as Austrian economics, so he does know now. Overall though the real problem of people like Kartik is that they have no idea that they are practicing something that is utterly, fundamentally, profoundly wrong and yet no amount of failure teaches them anything about possibly admitting that to themselves. Just like Krugman whom he derides for trying to popularize his mysterious art form, Kartik will toil tirelessly to help the Federal Reserve play perpetually bigger and bolder games to prevent the economy from collapsing. The idea that these games are actually collapsing the economy or at least enabling that collapse is as foreign to Kartik as atheism to a very pious person, and much less credible, because most pious people have moments of doubt when things are tough for them.

    I have advanced the idea that they will keep bleeding the patient until he dies either from the underlying disease or from the treatment a year and a half ago here. That is still precisely what they are doing and nothing but the collapse will make them quit. They are true believers who will not change their mind even then, but hopefully there will be a way to replace them.

  2. Craig Bowles on July 12, 2010 6:57 am

    There are a lot of areas in economics, so an area like the math of economics might require extensive math courses. When the Conference Board expanded into international indexes, FIBER showed them how to create the indices and brought in their adviser Phoebus Drimes to help explore the math part of creating indexes. Zarnowitz knew theory, FIBER new the cycles and components, and Drimes the math. Drimes might not have a clue about economic cycles but doesn't need to. Schools don't study economic cycles the way the Center at Columbia did but that's all private now. The only way you learn the stuff investors and business people really can use is on your own. Business and inflation cycle comparisons aren't taught in schools. On a side note, we had the plumber in upstate. He was saying how often they were mis-pricing jobs, because of the rise in prices. (Wonder if a PhD knows more about the economics of plumbing than a plumber?)

  3. Craig Bowles on July 14, 2010 7:21 am

    Look at this latest data out of Europe. They did some more crazy revisions. What it does is take about 1% off previous months and moves it to the rest of the year. The OECD previously had a leading index for Europe with nearly twice the growth rate but revisions make it a whole new index. These guys can almost report anything they want with some crafty seasonal adjustments.

  4. Gary Rogan on July 15, 2010 11:53 pm

    Seasonal adjustments in the middle of a statistical outlier economy are at best innocent stupidity. Between seasonal adjustments, revisions that dwarf the original deltas, and various undercountings such as the well-known workforce adjustments based on “those no longer seeking employment”, etc. the whole thing has become something between a joke and political football. The suspicion that the original Austrians had of government-disseminated measurement data as well as basing fundamental economic decisions on gathered statistics are well justified. As far as policy is concerned, all of this is totally irrelevant anyway: neo-Keynesians will spend until political reality and bond vigilantes will not let them spend any more. As Hayek postulated, when the Government has a point of view it will do whatever it takes to justify that point of view.


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