Wednesday, July 21, 2010

Graham Summers - The Stinging Critique of a Worker Bee

I was certainly not outraged when I read the comments of Fed “Economist” Athreya – a guttural giggle is the very best I could muster and I left such easy pickings to others. Graham did a good job of ripping him and so I share it below, my only comment being that the Fed’s, and other famous highly educated “Economists,” track records speak for themselves. They are indeed the ones who are clueless and instead of adding anything to economic discussion, they have set back the progress of humanity by centuries.
The Stinging Critique of a Worker Bee

A little while back, a Fed Economist by the name of Kartik Athreya, wrote a piece urging the public to only listen to economists who have PhDs from top level universities when searching for economic insights. Regarding other sources of macro-economic analysis, specifically bloggers, Mr. Athreya writes, “it is exceedingly unlikely that these authors have anything interesting to say about economic policy.”

Obviously this paper was a lot of fun for me to read. So I thought I’d present some thoughts on Mr. Athreya and the group of “experts” he represents.

For starters, Mr. Athreya introduces himself as the following:
The relevant fact is that I work as a rank-and-file PhD economist operating within a central banking system. I have contributed no earth shaking ideas to Economics and work fundamentally as a worker bee chipping away with known tools at portions of larger problems.
Now, the primary thrust of Mr. Athreya’s arguments is that one needs to have taken some form of graduate work on economics to provide any commentary on the subject that is “meaningful.”

Seeing as this is essentially a “leave the difficult stuff to us experts,” argument, I want to start with the self-description of the “expert” writing it. I wonder, when reading Mr. Athreya’s self-description, if worker bees do in fact “chip away” at things?

I realize that bees make honey and build hives… but chip away? What do they chip away with? “Known tools”? Do bees use tools? Which ones are these? And what “portions of larger problems” do bees “chip away” at? Building hives? Making honey? How do you produce honey by "chipping away"?

More to the point, what on earth is Mr. Athreya talking about?

We’re not even past page one of his “us experts are the only ones who know what they’re talking about,” diatribe and already it’s not even clear that he has a firm grasp on how to use basic metaphors. And he is meant to represent the sort of people us ordinary folk should listen to when it comes to explaining things that are “very complicated”?

I also wonder if Mr. Athreya, when making his somewhat self-deprecating introduction, was aware that most “worker bees” are in fact sterile females? Moreover, did he intend, by using the “worker bee” metaphor, to imply that the Central Banking System is in fact a metaphoric “hive” of which Fed Chairman Ben Bernanke is the “queen”?

I’ve written some pretty critical words regarding Chairman Bernanke and his policies, but implying that he is a large female whose only role is to sit around laying eggs all day is too rough even for my taste. A charlatan and a fool? Certainly. But a insect whose sole purpose is to lay eggs? That’s a bit much.

Of course, I am making an intensive examination of Mr. Athreya’s choice of words. However, if Mr. Athreya wishes to write a paper elevating himself and those of his profession as the only ones qualified to discuss difficult topics such as macro-economics, I would assume he would be intelligent enough to make a cogent metaphor (I am, of course, assuming Mr. Athreya was not aware of the implications of his “worker bee” self-description… for all I know he may in fact want us to believe he and his ilk are sterile females working for a queen).

However, in the interest of taste and decorum, let’s set aside my analysis of Mr. Athreya’s creative language and focus on the brunt of his intellectual argument. Rather than analyzing his entire essay, I thought it best to summate his points in a few bullets:
1. Macro-economics is very hard
2. Only those with at least some advanced PhD-level coursework can comment on macroeconomics knowledgably
3. Everyone who pretends they understand macroeconomics without having pursued said coursework is doing the world a disservice and misleading the general public
Mr. Athreya then goes on step further and points out that while many bloggers focus on the Financial Crisis, they fail to provide a similar amount of commentary regarding two other major crisis, specifically the earthquake in Haiti and the Tsunami in East Asia.

He writes:
I find the comparison between the response of writers to the financial crisis and the silence that followed two cataclysmic events in another sphere of human life telling. These are, of course, the Tsunami in East Asia, and the recent earthquake in Haiti. These two events collectively took the lives of approximately half a million people, and disrupted many more. Each of these events alone, and certainly when combined, had larger consequences for human well-being than a crisis whose most palpable effect has been to lower employment to a rate that, at worst, still employs fully 85% of the total workforce of most developed nations.
I chose this passage because it shows, in clear terms, just how self-righteous and clueless economists like Mr. Athreya are. To be clear, I do not think ALL economists are clueless. Moreover, I do not think all economists AT the Federal Reserve are dolts. It is quite clear from several of the papers published by folks at the Fed that some of them understand exactly what is going on and that they are as fed up as the rest of us.

So, if you have a PhD in Economics or work for the Fed, do not think that the following is necessarily directed at you. It is, instead, directed at those Economists who, like Mr. Athreya, believe they are somehow smarter than the rest of us, when in fact the vast majority of them missed the biggest Financial Crisis in 80+ years all the while promoting theories and policies that have done severe damage to American savers, the value of the US Dollar, and American living standards.

Over the last 40 years, Americans has seen a dramatic decline in incomes, living standards, and generalized quality of life while their savings and wealth were transferred to Asia, OPEC, and Wall Street.

Indeed, when you adjust for inflation using the Bureau of Labor Statistics OWN data, REAL incomes have declined some 40%+ from 1972 to today (weekly earnings of $143 in 1972 are worth $746 in 2010 dollars… compare that to the ACTUAL weekly earnings of $355 today).

Between 1970 and December 2009, the US Dollar lost 81% of its purchasing power courtesy, at least partially, of the Federal Reserve and the economists who decide policy there. This, combined with the drop in weekly earnings, is why, in the ‘70s, only one parent worked and families got by whereas today both parents typically work and are struggling to make ends meet.

In plain terms, the Fed’s policies eviscerated the middle class while funneling their money into Asia (per capita income in China doubled twice from 1978 to 1987 and again from 1987 to 1996), OPEC, and Wall Street (the financial industry’s profits as a percentage of total S&P 500 profits rose form 10% to 31% from 1970 to 2003).

In 1979, the top 10% of income earners in the US took in 67% of all capital income (income from stocks, bonds and the like). By 2006, this group was snagging over 80% of all capital income. Talk about concentration of wealth in the hands of the few!

Economists like Mr. Athreya and their “very precisely articulated model(s)” are indirectly if not directly responsible for this happening. Their work was used to back up policies that were in fact horrible for the American people and their living standards. In plain terms, they dressed up a bunch of theories that were complete and utter CACA all the while claiming these theories were facts. And all 300+ million of us in the US have suffered because of it.

Mr. Athreya decries the fact that bloggers focus on the Financial Crisis instead of the earthquake in Haiti or Tsunami in South East Asia. He implies that this focus indicates bloggers are in some way not concerned with the welfare of others.

Unfortunately for his arguments, neither the earthquake nor the Tsunami were man-made catastrophes. The Financial Crisis, in contrast, WAS man-made (actually IS, since it’s still going).

Moreover, the risks of the Tsunami and the earthquake were not well known to the experts well in advance (a handful of studies warned about a potential earthquake in the Caribbean, but the Tsunami came “out of left field” so to speak).

In contrast, as early as 1998, soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, approached Alan Greenspan, Bob Rubin, and Larry Summers (the three heads of economic policy) about derivatives. She said she thought derivatives should be reined in and regulated because they were getting too out of control. The response from Greenspan and company was that if she pushed for regulation that the market would implode.

So, the Economists and experts knew a full ten years in advance what the risks were in the financial system. And they did NOTHING to rein them in.

Finally, neither the Tsunami nor the earthquake resulted in the Federal Reserve channeling TRILLIONS of taxpayer dollars into the corrupt bank oligarchs’ coffers, often times paying 100 cents on the Dollar for worthless assets that are now poisoning the Fed’s balance sheet and assuring that the very issues plaguing Europe will one day hit the US.

The Financial Crisis DID all of this and more.

In no way shape or form am I belittling those who were killed or continue to suffer from the earthquake in Haiti or Tsunami in East Asia. My primary point is that both of those incidents were natural catastrophes that could not have been prevented. The Financial Crisis, which wiped out $50 trillion in wealth and has resulted in millions losing their jobs, COULD have been prevented.

And yet, consumers are supposed to listen to the guys whose entire careers are meant to focus on forecasting economic events when less than one percent of them forecast the Crisis (despite those at the top of the economist food chain knowing a full decade in advance of the risks in the financial system)?

Truly, Mr. Athreya and his ilk are “chipping away… at larger problems.” However, those problems are not economic models or unemployment, they are the following:
1. That ANYONE listens to economists like Mr. Athreya
2. That the US Dollar still has a value greater than toilet paper
However, do not be alarmed, I am sure that as long as the Fed keeps publishing this kind of nonsense while funneling taxpayer money into the Wall Street banks, both of these problems will soon be fixed… permanently.

When that happens, we can all toast Mr. Athreya and his ilk with $100 beers and take comfort that the experts knew what they were doing all along.

Good Investing!

Graham Summers

Oh wait, I guess I do have more to add! It occurs to me, and I’d have to do a $257 million study to provide the empirical data of course, that the more one is educated in economics the larger their misunderstanding of the true dynamics become. I strongly believe that our money system and who control it is to blame. Those same central bankers also are responsible for funding and thus control our higher educational institutions.

The “science” of economics is closer to astrology than it is to any real scientific field. Modern day economists use linear formulas with their basis in the days of Adam Smith. Highly touted and respected economists like Keynes, Friedman, Greenspan, Bernanke, and Krugman (among many others) have been making grandiose statements and predictions all built upon piles of myths and misconceptions. Their track records are abysmal at best, especially when the real non-linear world begins to leave the center of the DEBT operating envelope.

In short, these people have failed to pull their heads out of academia where they are programmed with one misconception built upon the other, all supporting the current power structure – a debt backed money box that feeds the central banks.

Indeed it’s time to advance the conversation – the place to start is by dismantling the Fed and sending people like Mr. Athreya onto the streets where they can learn the reality of economics and free their minds to understand the real world.