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Daniel Nevins: Economics for Independent Thinkers

Daniel Nevins: Economics for Independent Thinkers

It’s time we stop trusting the ‘experts’

Economists are supposed to monitor and analyze the economy, warn us if risks are getting out of hand, and advise us on how to make things runs more effectively — right?

Well, even though that’s what most people expect from economists, it’s not at all how they see their role, warns CFA and and behavioral economist Daniel Nevins.

Economists, he cautions, are modelers. They pursue academic lines of thought in order to make their models more perfect. They live in a universe of equations and presumptions about equilibrium states and other chimerical mathematical perfections that don’t exist in real life.

In short, they are the wrong people to advise us, Nevins claims, as they have no clue how the imperfect world we live in actually works.

In his book Economics For Independent Thinkers, he argues that we need a new, more accurate and useful way of studying the economy:

However far you go back, you can find economists who had a more realistic approach to how humans actually behave, than the way that mainstreamers assume they behave in the models that the Fed uses to pick winners and losers.

You mentioned credit cycles, business environment, and behavioral economics. What I’ve done is to say, “Okay. We know that the modeling approach, the systems of equations approach doesn’t work. But instead of starting completely from scratch, what can we find in the economics literature that is maybe more realistic?”

And the interesting thing is that if you look at the work that was done, the state of the profession before the 1930s, before Keynesianism took hold, you can find a lot of work that was quite sensible.

 

…click on the above link to read the rest of the article…

An Inflation Indicator to Watch, Part 1

An Inflation Indicator to Watch, Part 1

“Inflation is always and everywhere a monetary phenomenon.”
—Milton Friedman

Have you ever questioned Milton Friedman’s famous claim about inflation?

Ever heard anyone else question it?

Unless you read obscure stuff written for the academic community, you’re probably not used to Friedman’s quote being challenged. And that’s despite a lousy forecasting record by economists who bought into his Monetarist methods.

Consider the following:

  • When Friedman’s strict Monetarism fizzled in the 1980s, it was doomed partly by his own forecasts. Instead of the disinflation the decade delivered, he expected inflation to reach 1970s levels, publicizingthat prediction in 1983 and then again in 1984, 1985 and 1986. Of course, years earlier he foresaw the 1970s jump in inflation, but the errant forecasts that came later left him wide open to a “clock twice a day” dismissal.
  • Monetarists suffered an even harsher blow in 2012, when the Conference Board finally threw in the towel on Friedman’s favorite indicator, removing M2 from its Leading Economic Index (LEI). Generally speaking, forecasters who put M2 in their models are like bachelors who put “live with mom” in their dating profiles—they haven’t been successful.
  • The many economists who expected quantitative easing (QE) to wreak havoc on inflation are, of course, on the defensive. Nine years after QE began, core inflation remains below the Fed’s 2% target, defying their Monetarist beliefs.

When it comes to explaining inflation, Monetarism hasn’t exactly nailed it. Then again, neither has Keynesianism, whose Phillips Curve confounds those who rely on it. You can toss inflation onto the bonfire of major events that mainstream theories fail to explain.

But I’ll argue there might be a better way.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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