Washington’s Blog
July 1, 2010
Kartik Athreya of the Richmond Federal Reserve Bank argues that bloggers are stupid, and that only PhD economists have a right to say anything about economics policy.
This distinction is a little ridiculous, given that many of the world’s top PhD economics professors are bloggers.
And it must be noted that the Fed ignores any PhD economist who exercises any scintilla of independence.
For example, all of the PhD economists who say the economy won’t recover unless we break up the giant banks are ignored (even if they happen to be former Federal Reserve chairmen or Fed Bank presidents).
And well-known PhD economist James Galbraith is ignored when he argues that – because fraud caused the economic crisis – economists should move into the background, and “criminologists to the forefront”.
And of course, the PhD economists calling for a complete audit of the Fed or – heaven forbid – a challenge to Fed powers, are ignored.
In fact, as I pointed out in December, most economists don’t exercise any independent thinking because economists are trained to ignore reality:
As I have repeatedly noted, mainstream economists and financial advisors have been using faulty and unrealistic models for years. See this, this, this, this, this and this.
And I have pointed out numerous times that economists and advisors have a financial incentive to use faulty models. For example, I pointed out last month:
The decision to use faulty models was an economic and political choice, because it benefited the economists and those who hired them.
For example, the elites get wealthy during booms and they get wealthy during busts. Therefore, the boom-and-bust cycle benefits them enormously, as they can trade both ways.
Specifically, as Simon Johnson, William K. Black and others point out, the big boys make bucketloads of money during the booms using fraudulent schemes and knowing that many borrowers will default. Then, during the bust, they know the government will bail them out, and they will be able to buy up competitors for cheap and consolidate power. They may also bet against the same products they are selling during the boom (more here), knowing that they’ll make a killing when it busts.
But economists have pretended there is no such thing as a bubble. Indeed, BIS slammed the Fed and other central banks for blowing bubbles and then using “gimmicks and palliatives” afterwards.
It is not like economists weren’t warning about booms and busts. Nobel prize winner Hayek and others were, but were ignored because it was “inconvenient” to discuss this “impolite” issue.
Likewise, the entire Federal Reserve model is faulty, benefiting the banks themselves but not the public.
However, as Huffington Post notes:
The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.
This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed’s thrall, the economists missed it, too.
“The Fed has a lock on the economics world,” says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. “There is no room for other views, which I guess is why economists got it so wrong.”
The problems of a massive debt overhang were also thoroughly documented by Minsky, but mainstream economists pretended that debt doesn’t matter.
And – even now – mainstream economists are STILL willfully ignoring things like massive leverage, hoping that the economy can be pumped back up to super-leveraged house-of-cards levels.
Full article HERE
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