Wednesday, August 4, 2010

Economists for PR?

Falkenblog trashes macro:
I worked directly for Chief Economists at two major banks, First Interstate in the late 1980's, and KeyCorp in the 1990's. While it would be nice to know when the next recession or interest rate move will happen, no one thought the economist knew better than other random members of the executive committee. Economists are good at presenting the information that seems useful, but as per tying it together, they can't and most people making important decisions know that. This is why economists are always on TV and not in boardrooms. It is also why economics departments at banks have gone from large staffs in the 1970s (at the height of the Keynesian modeling boom), to basically one guy, because it was discovered his or her only value is getting the company name on TV. If someone presents themselves as especially credible because they were a chief economist, I know they are fools.

I spent 3 years of my life working directly for private sector macroeconomists, and the main thing I learned is they don't know anything useful.
I wish that he would have remembered to have written macroeconomics and macroeconomists instead of just economics and economists. Just off the top of my head I can think of one private sector chief economist who added several hundred million dollars in value to his firm. I don't think Google hired Varian just for his telegenic good looks.

5 comments:

  1. So, if we accept that macroeconomists are not very good at predicting the future, do they at least have any value in describing what has happened in the past?

    And is there a name for disciplines that have this problem? (Other than "historian".)

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  2. @Thomas: Friedman's monetary history is a beautiful piece of economic history tied to very good macroeconomic and monetary analysis.

    @sagenz: Varian gave our Condliffe lecture here last year; it was excellent.

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  3. I have always thought that macro gives economics a bad name!!!

    "It is also why economics departments at banks have gone from large staffs in the 1970s (at the height of the Keynesian modeling boom), to basically one guy, because it was discovered his or her only value is getting the company name on TV"

    Or is it that they are now contracting out these services? The bank may just being using consultants rather than doing it in-house.

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  4. Hey Eric :)

    Yeah, I wouldn't go putting the boot into macroeconomics (although I agree with the bank Chief Economist remark!). Its "big picture" stuff and should be seen in that context. Wasn't it Becker who said something about economics having nothing to say about the immediate short term, and is applicable only over a medium / long term? The short term realm is for statisticians and chartists.

    Paul Krugman's got a view on how and why macroeconomics messed up, which I find fairly persuasive: http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=1&ref=paulkrugman

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