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December 08, 2008
Macroeconomics Is Complete Bunkum
By Bill Frezza
Quick! name a science for which the Nobel Prize is regularly awarded in close succession to winners that directly contradict
each other.
Or how about a science in which theories often become discredited then return just to be discredited, then return yet
again?
Or a science in which it is taken for granted that learned practitioners from rival tribes will examine the same data
and come to diametrically opposed conclusions?
Can you imagine a science in which it is impossible to perform repeatable experiments capable of invalidating hypotheses?
How about a science in which rabid partisans are paid to bark at each other on Sunday morning talk shows?
If you guessed the dismal science, economics in general and macroeconomics in particular, you win the my-mom-did-not-raise-a-fool
prize. Never in the course of human events have so many been misled by so few. Yet we blithely accept the prognostications
of this puffed-up priesthood, many of whom have never so much as run a corner candy store. Why?
Macroeconomics is the practice of looking for correlations between poorly defined and badly collected aggregates over
cherry picked time intervals meticulously ignoring inconvenient factors in order to justify preconceived notions. What makes
this different from astrology?
Why is it easy to believe that some muttering gnome in Washington sets interest rates for the entire economy yet impossible
to believe that all he is really doing is engaging in signaling so competing banks can collude when pricing debt without earning
the wrath of anti-trust enforcers?
Remind me again which federal funds rate we are watching this month? Has this whole kabuki show started to feel curiouser
and curioser?
What, your inflation analysis is not giving you the answer you need to support your favored policy prescription? No problem,
change the variable! M1 is no good anymore we need M2. No M3. Wait! nevermind.
Deficits are a dire calamity! Deficits are absolutely required! You do not even need two economists for this one, just
hang around the same guy long enough for the administration to change in Washington.
In what other field but economics can practitioners say with a straight face, Well that did not work, let us have some
more of it!
Oh my gosh, we built too many houses and prices have cratered. It takes an economist to recommend that the solution is
to stimulate the house building industry. Will not those extra houses further depress prices? Not to worry, another economist
will come along and recommend that we build them on rafts, float them out to sea, and have the Navy use them for target practice.
And if they did, a third economist will tell us that the program increased GDP and reduced unemployment!
When is a person who does not have a job unemployed and when is he retired or permanently discouraged or self employed
but keeping mum about it so he can hold on to his income rather than be forced to share it? Ask an economist, he is trained
to make something up to suit your every need.
Are we in a recession? No, silly, you cannot look at those flaky aggregates for yourself, even if they are seasonally
adjusted and post-corrected. Calling a recession is the exclusive province of some cloistered brotherhood of soothsayers.
Do not misunderstand, microeconomics can be incredibly valuable. Want to forecast how a change in your product pricing
strategy might shift market share? Eager to learn how different factory overhead loading schemes might impact your optimal
product mix? Want to decide when it makes sense to trade off capital costs against labor expenses? Private companies do this
every day. If they get it right they thrive and if they get it wrong they are the only ones who suffer. Only macroeconomists
have the power to make us all suffer.
Who gives them this power? Follow the money. Politicians today collect favored economists the way princes of yore gathered
court astrologers. But princes of yore never had handmaidens of media to amplify their special wisdom. How many physicists
can you name that became TV and newspaper darlings? OK, maybe Carl Sagan. But all he did was ask us to marvel at billions
and billions of stars. He never provided cover for congressmen trying to shift billions and billions of dollars from Peter
to Paul.
Raise corporate taxes to fund a consumer stimulus giveaway and some economist will salute your decisive action. How about
instead we encourage shoplifting and cut out the middle man? Did you just laugh? Where has your common sense gone that you
can laugh at the latter and not the former? Maybe some economist stole it.
OK, let us get serious for a moment. How much outright death and destruction does it take to discredit an economic theory?
1 million bodies? 100 million bodies? Apparently that is not enough for the university professors who still teach Karl Marx.
It is the implementation that was flawed, not the theory! A compelling argument, no doubt!to the defenseless mind of an 18
year old.
I confess that the only Hayek book I made it through without my eyes glazing over was The Fatal Conceit. It is a slim
volume written later in life, apparently after Hayek discovered humbleness, an unusual discovery for an economist. His thesis
is simple, I do not care how smart you are, you cannot keep track of all this s**t.
Economists who believe they can centrally plan a national economy and optimize, what, some flaky set of poorly defined
aggregates?, are deluded. Politicians who promote these delusions to arrogate power to themselves are knaves. And voters who
buy this fantasy are dupes. Yet Hayek be damned, here we go again.
In the final analysis, what possesses us to dignify these economists with arguments rather than laugh them off the stage
the way we would a doctor who recommends leeches to drain phlegmatic humours? What will it take to pull back the curtain and
reveal that there is no wizard, that we are going to have to muddle along for ourselves using our own resources to solve our
own problems?
I do not know. Maybe someone should buy Obama a dog named Toto.
Bill Frezza is a partner at Adams Capital Management, an early-stage venture capital firm. He can be reached at waf@acm.com.
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