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The Jehoshua Novels


Send in the Clowns

Kartik Athreya, a Ph.D. economist at the Federal Reserve Bank of Richmond, has managed to grab his fifteen minutes of fame. He posted an open letter to bloggers on the Richmond Fed website and titled it: Economics is Hard. Don’t Let Bloggers Tell You Otherwise.” I’ve managed to find a few juicy quotes from this paper:

The general public are simply being had by the bulk of the economic blogging crowd. In this essay, I argue that neither non-economist bloggers, nor economists who portray economics ”” especially macroeconomic policy ”” as a simple enterprise with clear conclusions, are likely to contribute any insight to discussion of economics…

Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy…

The response of the untrained to the crisis has been even more startling. I listen to Elizabeth Warren on the radio fearlessly speculating about the nature of credit market dysfunction, and so on…

The general public are simply being had by the bulk of the economic blogging crowd…

Economics is hard. Really hard. You just won’t believe how vastly hugely mind-boggingly hard it is. I mean you may think doing the Sunday Times crossword is difficult, but that’s just peanuts to economics. And because it is so hard, people shouldn’t blithely go shooting their mouths off about it, and pretending like it’s so easy. In fact, we would all be better off if we just ignored these clowns…

Dr. Athreya ”“ I can call him doctor, can’t I ”“ isn’t shy about naming members of the clown fraternity. He identifies Robert Reich, Matt Yglesias, Robert Samuelson, Brad DeLong, John Stossel, and Paul Krugman. I have news for Dr. Athreya ”“ and no it is not that one of these men has a Nobel Prize in Economics. Dr. Athreya, these men aren’t blogging clowns. They are Main Stream Media clowns who happen to write blogs on the side.

We here at The Agonist are blogging clowns, and we wear our wigs and red clown noses with pride precisely because events have proven that what we have to say has had more meaning that anything produced by teams of Ph.D. economists working at the Fed.

If Dr. Athreya or anyone at the Fed bothered to read the real blogosphere, whether it be on the right or left side of the political spectrum, they would have something to worry about, because there is a growing doubt in the blogosphere as to why we need the Federal Reserve at all. How would the economic and financial collapse we have experienced occurred if the Fed had not flooded the economy for over ten years with cheap credit, while the banks it was supposedly regulating threw all sense of credit risk out the window?

As this Greatest Depression rolls on, what are now question marks about the Fed’s role will turn into exclamation points about the Fed’s purpose, and an existential crisis will engulf the institution. Men like Ron Paul who were taken for kooks ten years ago for suggesting the Fed be abolished will be venerated as prophets for their wisdom and foresight.

I would like to give you more of Dr. Athreya’s argument and perhaps a better balanced view of his paper than a few quotes, but the internet has been scrubbed free of any copies of it, and the Richmond Fed has purged their website of his open letter to the blogosphere. Someone at the Fed realized no doubt that Dr. Athreya was being impolitic, not so much for criticizing economists like Paul Krugman and Robert Reich, but for revealing how officials at the Federal Reserve really think.

The men who run the institution view themselves as a priesthood at the high temple of finance. Not simply what they do, but the very way they think and reason must be cloaked in secrecy and mystery. To rise to the top of the institution ”“ to become a Chairman like Alan Greenspan or Ben Bernanke ”“ you must speak in economic gibberish that conveys nothing meaningful.

It is in secret that the Fed granted banking licenses without public discussion to Goldman Sachs and Morgan Stanley, neither of which has done anything to act like a bank by lending money to corporations or individuals. The Fed secretly negotiated a bailout of AIG’s derivatives contracts held by banks by paying 100% par value on this paper, while the banks were already valuing the paper at 40% discounts or higher. The Fed then refused to divulge this fact and went all the way to the Supreme Court to keep it secret, until it lost its case. We have recently learned that the Fed, along with the Treasury, refused to grant any loans to AIG until the company agreed in writing, at the express protest of its legal advisers, to never sue Goldman Sachs for any acts of fraud it may have perpetrated in selling derivatives to AIG. That this is illegal and a violation of federal law didn’t phase the Fed one bit.

High priests don’t answer to the people. They comfort the people with soothing words, and in times of trouble they spread even more incense and smoke. They are trained to have no doubts as to their own superiority and their special access to the divinity, in this case Mammon. Dr. Athreya may appear to us to be supercilious and condescending, but he fits right in the mold of the typical Fed policy official. It is his job to tell us what to think and believe, and it is our job to bow down to his superior intellect and shiny degree. And as a special sign of deference, we should scrape our clown noses in the dirt while we do so.

17 comments to Send in the Clowns

  • OldLakeRat

    Me keep rubber nose…fuck this idiot!
    _____________________________________________________
    May we have the clarity to see what is required of us, the courage to accept it, and the capacity to discharge it.
    Robert Fripp

  • dot_txt

    I first saw this story on 6.28.10 over at ZeroHedge here:

    http://www.zerohedge.com/article/fed-has-lost-it-publishes-essay-bashing-bloggers-tells-general-public-broadly-ignore-those-w

    Today a follow on was posted and the Michael Rivero portions seems to have been calibrated along Numerian specs. You guys should call each other up and see if you will be wearing the same clothes to the slumber party. :)

    http://www.zerohedge.com/article/did-fed-economist-slam-bloggers-same-reason-fundamentalist-priests-slammed-printing-press

  • Jonathryn

    For instance, the Federal Reserve’s number one task, as everyone knows, is:

    “Conducting the nation’s monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.”

    Zero for three . . . so very hard . . . to do all that research and focus grouping to make sophistry seem wise, villainy noble, and larceny virtuous, with such conviction and utter seriousness that you convince even yourself, and see fit to patronize the likes of Robert Reich and Paul Krugman.

    So hard. . . .

  • Wandering Cynic

    I have a shorter response to Athreya:

    Untrained people will give the economics profession the deference it seeks when and if the economics profession has a track record to deserve it.

    Most people respect the work that engineers do in their respective fields because engineering has a demonstrated track record of designing things that work.

    The economics profession, in contrast, has a comparable predictive ability to astrology and the curative efficacy of leeches.

    If economists want deference, the mainstream economics profession needs to develop a track record on par with engineering. Suggesting that every economic problem can be solved by giving our money to the rich isn’t good enough.

  • Numerian

    In fact, Athreya cites as one of the clowns William Greider, who wrote Secrets of the Temple about the Fed and its priesthood. I would assume Rivero is like me – he grew up in the financial industry hearing this reference from time to time.

  • mauberly

    Surely someone somewhere downloaded the paper. Or maybe it can be found in Bernanke’s prayer book.

    http://mauberly.blogspot.com/

  • Raja

    The Telegraph, By Ambrose Evans-Pritchard, June 29

    Like a mad aunt, the Fed is slowly losing its marbles.

    Kartik Athreya, senior economist for the Richmond Fed, has written a paper condemning economic bloggers as chronically stupid and a threat to public order.

    Matters of economic policy should be reserved to a priesthood with the correct post-doctoral credentials, which would of course have excluded David Hume, Adam Smith, and arguably John Maynard Keynes (a mathematics graduate, with a tripos foray in moral sciences).

    “Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy.”

    Don’t you just love that throw-away line “decent”? Dr Athreya hails from the University of Iowa.

    “The response of the untrained to the crisis has been startling. The real issue is that there is an extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading.”

    You couldn’t make it up, could you?


    One owes respect to the living. To the dead, one owes only the truth.

  • Celsius 233

    Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them,and these will continue till they are resisted with either words or blows,or with both~FDouglas

  • Numerian

    I can’t get anything to load.

  • Sean Paul Kelley

    it to you.

    “Sí che dal fatto il dir non sia diverso.”

    -Dante

  • Disconcerted

    My favorite line: “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.”
    Apparently PhD’s are not given for brilliant thinking, but rather, for absorbing orthodoxy. Maybe that’s the problem.

  • Numerian

    Several readers were kind enough to send it to me. It is still delisted on the Richmond Fed website.

    I can’t say I am a better person for having read the whole thing. As late as the early 20th century, the discipline of economics was known as political economics. It was expected that trained students of the discipline would make the connection between economics and politics.

    By the time Keynes got to publishing The General Theory, economics had already veered off into a sub-branch of mathematics, in which it was necessary to have tools such as calculus to model how the economy worked. This lent a pseudo-scientific veneer to economic discussions.

    Dr. Athreya is steeped in the modeling/mathematics business of economics. His models have to be internally consistent and rigorously vetted by other professionals. As he says, 80% of the papers submitted for publication are rejected on these grounds. His paper about the blogs laments that publicly influential people, some of them economists, can say any old thing about the economy without anyone approving what they say. This allows silly and erroneous discussions to dominate public discourse. Ipso facto, bloggers have nothing meaningful to say about the economy.

    I happen to approach the economy from my perspective as a trader and keen observer of the markets for most of my career. Traders have to understand something about the economic reports and data which move markets. Many traders develop significant expertise on economics – see Bondad, whose opinions currently I disagree with, but who is mighty good at economic analysis. I’ve actually made money from some of the things Bondad has written, whereas I have never heard of Dr. Athreya or hardly any other economist at the Fed, all of whom seem to work in obscurity for an internal audience at a highly insular institution. Even Dr. Athreya admits he himself has contributed nothing significant to the field of economics.

    Making money is not necessarily the best yardstick by which to judge someone’s economic opinions, but certainly Dr. Athreya, if he has a complaint about bloggers, has a much bigger complaint about tens of thousands of traders, financial analysts, market analysts and others who routinely write about the economy. This is how they make their living, and their advice shapes investor attitudes and actions across the world.

    It seems the core complaint of Dr. Athreya is that no one is listening to him or his colleagues, but instead to paid or unpaid bloggers who don’t deserve an audience. Dr. Athreya would use his time better if he analyzed why this was, rather than attacking bloggers.

  • Scotjen61

    There was no way I wanted to wade into this discussion defending this guy, as A) I don’t want to defend him cause at some levels he’s wrong, but B) without actually defending him he was getting hammered by blogs who were not citing what he had written correctly.

    His frustrations I think emerge from the ‘arguments’ that are just plain incorrect. As an example, the ‘debate’ about whether stimulus spending creates jobs, which any modeler can demonstrate easily that it does. In his career I could imagine him reading the paper daily and seeing stupid unvetted opinions about the economy, and without so much as a whisper of verification of the views.

    Welcome to the MSM. I mean the New York Times wouldn’t call torture torture because the Bush administration wouldn’t, and therefore whether it was or not became somehow controversial. That’s the MSM, and for that reason likely has not been especially relevant since the 70′s other than to root the lemmings over a cliff from time to time. I think the beauty of blogs is that they CAN BE wrong, and the discussion, the back and forth gets something else entirely. It is a hive that is at work, not individual works. So blogs in all their ‘error’ get it right as far as I am concerned.

    When I look back, it has been blogs that have exposed and blown open issues, that the MSM was found to be complicit in covering up. But I can feel for the guy, and the fact is you got to get up and say something outrageous to get on Teeee Veeee. If he’s going to get up and talk sense, what’s the fun in that?

    Your last comment I don’t think is fixable from the standpoint of the MSM, because news is entertainment. It is entirely designed to stoke anger, outrage, fear and loathing. No one listens to someone who is trying to be rational, calm, intellectually persuasive in the public media. I think collectively it CAN exist in blogs. It certainly does on this site from time to time:)

    I do think he should start a blog though and get a voice and see how it goes.

  • Arnie

    Making economics foolproof is solved rather easily; asking for a description of the economic model being considered is usually enough to reveal the inconsistencies and conflicts of the model.

    The real challenge is to make economics professor-proof; anticipating the dumb-fool things an educated person will get up to is several magnitudes greater difficulty than an ordinary fool.

    Economics as with nuclear engineering is cosiderably safer when made professor-proof.

  • Singular

    So, there is political economics like “environmental economics” and “Marxist economics” which have been discussed somewhat on The Agonist lately. These kind of questions are solved by voting, bullets or by the elite. Bloggers write much on these.

    Choosing a political perspective to economic policy does favor some groups.

    Krugman etc. write popularized economics, prose. Usually from some kind of political perspective.

    Then there is science based economics based on models and data. Or should be. Often this is politicized and biased too. When your only tool is a monetaristic or Keynesian hammer, all the problems look like a nail.

    You usually read some babbling and prose on Marxism but there has been some serious studies too trying to measure it with the same concepts as market economy. In the core of market economy at microlevel is the theory of demand, supply and pricing. Because all these three were fixed in Soviet Union by GOSPLAN, was it simulating the interaction of demand/supply/price?

    What comes to these Fed clowns, did they really think that they just need to create some interest rate policy and financial regulation, like laws and SEC, will become unnecessary? Do these Fed clowns really think that their models can model financial fraud and its financial consequences?


    – Thinking inside the box maximizes risk adjusted profits

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