Wednesday, November 20, 2013
Government Economists: About as Useful as a Fork in a Sugar Bowl
Here's an excerpt from an email I received today:
Humans tend to believe what they're told by authority figures. Even in the face of contradictory evidence.
The Milgram Experiment taught us this in 1963. Posing as scientists, researchers instructed volunteers to inflict painful electric shocks on what they thought were other innocent volunteers, as a penalty for answering questions incorrectly. The shockers couldn't see the people they were shocking, but could hear their reactions: terrible cries of pain, pounding on the wall, pleas to stop, and eventually, ominous silence.
Of course, it was all a ruse, but the shockers didn't know that. They thought they were effectively torturing the victims. Yet most shockers ignored the victims' agonized pleas to stop, opting instead to obey the "scientist's" commands to continue.
Why? Because the "scientist" was an expert. He was wearing a white lab coat, so he must know best.
We treat economists similarly today, deferring to their expertise in economic matters, even when common sense suggests they are wrong. Paul Krugman says an alien invasion would cure our economic ills by forcing us to spend money to defend against their attack. If a stranger on the bus said that, you might direct him to the nearest mental facility.
But Krugman? He has a framed MIT doctorate gracing his office wall, so he must know what he's talking about.
Here's a dirty little secret: Economists—particularly government and other mainstream ones—stink at their jobs. They're awful at forecasting the future. History shows that not only are economists incapable of forecasting recessions, they usually can't even recognize that we're in a recession once it's already started. If you were as bad at your job as the average economist is at his, you wouldn't have a job. Management would fire you, assuming they could do so before your horrendous decisions brought down the entire company.
With that background, I'm excited to share with you an excerpt from John Mauldin's fantastic new book, Code Red. As you might've guessed, the premise of the passage you'll read below is that mainstream economists have a horrific track record, a claim the book backs up with impressive stats.
This was aimed at the economy and investors, but could also be viewed in the context of NEPA and regulatory analysis and other brain flatulence that we must deal with almost every day.