Monday, February 20, 2012

Econospeak Is Cranky

There's a strange mixture of crankiness and innocence in a piece up at Econospeak this morning--crankiness about the shortcomings of anyone who doesn't happen to be professor monetary theory (sic, did I get that right?). and innocence about--well, innocence about almost everything else.  The headline is "In Some Circles, Economics Is Anathema."  He (Peter Dorman?) begins:

 A pattern I find disturbing is that much of the left, at least in the English-speaking world, regards economics simply as a source of intellectual and moral corruption.

 Hm.  Well, the part beginning "at least..." sounds like a fair statement of fact.  I'd even accept "much of the left" if he added "and a good deal of the non-left"--or if he takes "left" to mean "anyone who does not admire economics as much as I do."    He goes on to complain that "Those who take this view make sweeping pronouncements on economic topics, but they pride themselves in not polluting their understanding by consulting economists or reading what economists have written."  Fair comment again, although I'd try to console him with the insight that the grievance can be uttered by the practitioner of any occupation requiring skill, any profession or trade: don't we all fall short in appreciating the achievements of our betters?  But now he gets down to cases:
Want an example? Check out the Uneconomics initiative and its “exposé” of how banks create money. Who could have imagined: private banks actually create money out of thin air when they make loans, and this creates the potential for economic volatility due to over- and undersupply. These secrets, supposedly covered up by sneaky economists and other elitists, are revealed by radical social critics, and we should be shocked, shocked.
Hm again.  We'll he's certainly right as a matter of crude empiricism.  But I think he might want to give more considered thought to just how pervasive this  notion is--not simply a general  matter of underrating our betters but of embracing this particular (as I would describe it) misunderstanding of the monetary system.  It's not just some unwashed infant in Zuccotti Park.  It goes straight back through the 19th-Century Populists, through Andrew Jackson's campaign against the bank of the United States, through Thomas Jefferson and for all I know you can find it in the pastoral verses of Theocritus.

It is, in short, a very odd idea indeed. I can testify.  I have virtually no "training" in econ (you knew?) although I've done a non-trivial dollop of self-study and I've here to tell you just how vertiginous the landscape of money can be--the same sort of response you had at the age of (what was it, six? eight?) when you  first learned the mechanics of sex: this all just too weird to be believed.  All the moreso, I suppose, if the person trying to keep the secret of money has just so much more security, comfort, prestige and, well, yes, money than you do.  It can give one the jimjams and you don't have to be a lefty to feelit.

And dare one add--the whole econ profession might do a bit better a job of selling its prestige if  the practioners had the least reason to crow about their performance over the last half dozen years. Instead we are treated to a display of shouting and finger-pointing that could easily be misunderstood by an outsider as some weird and hitherto undiscovered primitive shadow-dance.

I don't want to join the camp of the nihilists here.  I think economics is a field indeed populated with non-obvious, non-trivial ideas worth striving for and worth understanding (pressed, I could probably even pass the author's course, at least the undergrad version).  I think on the whole that economists have probably added a bit more content to the cup of beatitude.  But a posture of grandiosity is rarely becoming.  Under the circumstances, I suspect that just a trifle of apology might be more in order.

One final note: the writer includes a one-sentence free-standing paragraph:
Banking is a system that runs on make-believe and survives on ignorance.
I am really not sure whether he intends us to file that under prosecution or defense.  But is there anything in it which the most convinced money man would not, in a moment of candor, acknowledge?


marcel said...

Brad deLong wrote about a similar screed about a year and a half ago, in which someone at the Richmond Fed basically told people without advanced training in macroeconomics that they couldn't discuss the subject. It was all over the econ-web at the time, and the author ended up removing it from the Richmond Fed website, as I recall.

Ken Houghton said...

"Banking is a system that runs on make-believe and survives on ignorance."

I'm inclined to argue that the author understates the case: Banking thrives on ignorance. And we're not just talking Asymmetric Information. (We can quibble about the overlap between Ignorance and Uncertainty; you say potaTOE...)

And Peter Dorman, who is very accessible, quite correctly decries the idiocy if the NEF publication really calls Franctional Reserve banking "ultimately a deceit, legal fraud."

And if, indeed, 94% of people assume no more than a 1:1 correspondence between liabilities (deposits) and assets (loans)—and especially the 33% who assume their money remains in the bank, doing nothing, while they get paid for depositing it—then there is a problem with economics education, and lunacies such as the NEF presentation (at least if the interpretation presented of it is correct) will only make that worse.