Dr. Keynes Was Right

It's the Distribution, Stupid
JANUARY 13, 2012 4:24PM

They Eat Crow, Cold [updated]

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I was right, right, right.

Not that this makes me feel so much better.  Quants began to invade economics departments in the early 1970's.  I was there and saw the jettisoning of economic understanding for algebra, preferably in support of partial differential equations and Bayesian statistics.  Insight is far more important than symbol manipulation, unless your field is math or physics.  Even so, in the latter case the symbol jiggling follows the insight; that's just what Einstein did.  He as lousy at algebra and needed help.

To paraphrase Shakespeare:  "The first thing we do, let's kill all the quants".

Some juicy quotes.

"Some officials, including Susan Bies, a Fed governor, suggested that a housing downturn actually could bolster the economy by redirecting money to other kinds of investments."

Actually, kind of right, in that, as I've been saying, housing isn't investment in expanded production.  But not so easy to pull off when the housing investment is crooked to begin with.


"The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation's pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with shepherding. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken."

The crux of the matter, of course.


"'It's also embarrassing for economics,' [Justin Wolfers, an economics professor at the University of Pennsylvania] continued. 'My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.'"

Again, spot on.

 

[update]
I haven't had time to read all of the transcripts, but for those who are interested, here are a couple of links.

This one is the transcript page.

This one is a longer set of quotes.

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